How will pension scheme auto-enrolment affect your small business?

Posted May 25, 2016

The auto-enrolment pension scheme is a new set of legislation that’s designed to get more employees to save for retirement.

The process is going to require small business owners to enrol staff on to the scheme, and (in many cases) make a contribution towards pension payments. Here’s how the scheme might affect your small business:

How does an auto-enrolment pension scheme work with director-only businesses?

If you run a director-only small business, then you’re likely to be exempt from setting up an auto-enrolment pension scheme.

Such contracts need only be set up for people who are classified as ‘workers’. A director cannot be classified as a worker unless:

The director holds an employment contract
Another person is employed by the business

If there’s more than one director, then you remain exempt from setting up an auto-enrolment scheme, unless more than one other director has an employment contract in place.

But, what if I have employees?

For employees, the latest guidance states that a scheme need not be set up if all people employed are earning less than £10,000 pa.

If your current employees earn over this amount, then you will be required to set up an auto-enrolment scheme the next time one of your workers chooses to opt-in. You’ll also need to give these employees sufficient information about their right to join a scheme.

Enrolment status and contribution obligations are dependent on employee salary rates.

Workers earning less than £5,824 pa must be enrolled if they ask, and there’s no obligation to pay into their pension pot (although, you can if you want to).

Those earning £5,824 – £10,000 must be enrolled if they ask, and you’re obliged to contribute to their pension pot.

People earning £10,000+ must be automatically enrolled, and you’re again obliged to make pension contributions (unless they’re below 21 or above state pension age).

Minimum contributions are currently set at 2%, rising to 5% from April 2018 and 8% from April 2019.

If you want more expert accountancy advice for small business owners, call on the experts at 3 Wise Bears today.