Any small employer no matter if they have 50 employees or one should be aware that they have certain legal employment obligations, such as the provision of regular payslips, entering into an employment contract and as of now enrolling them into a qualifying pension scheme.
As of 1 June 2015, all employers with 50 employees or less, including, for example, parents who employ a single nanny, will have to auto-enrol their employees into a qualifying pension scheme within the next three years. Each employer will be notified by the Pensions Regulator when their staging date is 18 to 12 months in advance. The Staging Date is the date by which you have to have set up the scheme so if you haven’t been notified you have some time.
Here are some further points to be aware of:
A company will only have to auto-enrol their employee / employees if they are classed as an “eligible worker”, i.e.:
– Is not already in a workplace pension scheme;
– Is at least 22 years old;
– Has not yet reached State Pension age;
– Earns more than the minimum earnings threshold (currently in 2015/2016: £10,600 per year or £192 per week); and
– Works or ordinarily works in the UK according to their contract.
If your employee qualifies, then your company will have to pay a minimum contribution based on his / her “qualifying earnings”. These are currently the amount between an annual gross salary of £5,824 and £42,385.
Contributions start at 1% from both the employer and the employee and will increase by October 2018 to 3% from the employer and 4% from the employee. The employee contributions will be treated as pre tax deductions, so the individual’s PAYE liability will be reduced by 20% of their pension deductions.
Pension contributions will be based on your employee’s gross earnings so it is therefore very important to agree a gross salary with your employee or you could end up paying a lot more.
Anyone employed for less than three months will not need to be enrolled by their employer automatically, although they can join an existing pension scheme of their own accord.
If your employee does not want to be enrolled in a pension, you are still legally obliged to enrol him / her, but once registered the employee has a month in order to opt out from the day he / she officially becomes a member of the scheme. So an employer will still have to set up a pension scheme and register before the employee can opt out. If an employee fails to opt out in time, he / she will not be able to get his /her money out, but it will remain there until he / she retires.
Employees who opt out can rejoin at any time and employers will also have a duty to automatically enrol employees back into the scheme approximately every three years provided that the employee is still eligible.
Companies and anyone else employing someone (sole traders, parents, households using cleaners or any other form of domestic staff) should contact their payroll provider who should do all the administration and calculations for them, including all the paperwork.
*Sarah-Jane Butler is founder and managing director of Parental Choice, a one-stop childcare advisory service for parents, including parents searching for and employing nannies. With respect to individuals employing domestic staff, Parental Choice can guide them through their obligations and take the stress and hassle out of enrolling their domestic staff as part of our payroll and contract services.