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Q. I’ve been running my own painting and decorating business with great success, and I’m ready to take on an employee for the first time.
I’ve read that small businesses now need to offer a pension, but does that apply to me, given that I’ll only have one member of staff?
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A. For the past five years, companies have been obliged to automatically enrol their staff into a pension scheme, and make a contribution towards their retirement savings. The rules were introduced back in 2012, starting with the biggest companies in the UK, but over time have been rolled out to medium and small employers as well.
The legislation also applies to ‘micro’ employers like you. You may have read in the news that people who employ nannies and carers also have to provide a pension to their staff.
Previously, people who had one or two employees were given a ‘staging date’, which was effectively notice that they had to enrol their staff into a pension. But from 1 October 2017, anyone taking on staff must immediately offer a pension scheme – technically known as ‘instant staff duties’.
How much will I have to pay into a pension for staff?
The rules of auto-enrolment are quite complex, and the amounts that you as an employer will contribute are set to increase over the next few years.
Currently, a minimum of 2% of an employee’s earnings must be paid into a pension – a contribution 0.8% by your employee and 1% by you. The remaining 0.2% is made up of tax relief from the government.
But you don’t need to pay this on your staff member’s entire salary. The contribution rates apply to their ‘qualifying earnings.’ This means the percentage of contributions are made on a minimum of £5,786 and a maximum of £45,000. This range of qualifying earnings changes every year, so may not be the same in 2018 and 2019.
Over the next two years, contribution rates will be increasing: