You might not think of yourself as an employer, but if you have a carer, gardener, nanny or cleaner then that's exactly what you are under Government rules.
As part of the auto-enrolment scheme, all 'micro employers' now need to start making pension provisions for these workers.
“If you employ just one person, then you are an employer and have ‘duties’ under pensions law,” says the Pensions Regulator.
The Department for Work and Pensions has revealed that there are still 400,000 employers yet to register their staff. If these people fail to do so they face fines that could run into the thousands.
Who has to have a pension?
Employees aged between 22 and State Pension age who earn more than £10,000 a year (or £833 a month, or £192 a week) must be automatically given a workplace pension.
If you employ someone who earns more than £5,876 a year, or someone who is older or younger than the age range they have the right to ‘opt in’ to a workplace pension and receive employer contributions.
Anyone earning less than £5,876 a year can still choose to opt-in to a workplace pension, but employers don’t have to make a contribution to their pension.
What will it cost me?
People earning over £5,876 qualify for employer contributions to their pension too. At present, the minimum amount paid into a workplace pension must be 2% of qualifying earnings – this is typically made up of 0.8% from the employee, 1% from their employer and 0.2% in tax relief.
However, this will rise from April 2018 to a total minimum contribution of 5%, with 2% coming from the employer. It will then rise again in 2019 to a total minimum of 8% with 3% coming from the employer.
The contribution isn’t calculated on all the employee’s wages, just the ‘qualifying earnings’. That is what they earn over the £5,786 minimum up to a current maximum wage of £45,000.
What do I need to do?
If you employ someone who qualifies for auto-enrolment you need to find them a pension provider, enrol them and then make regular contributions to the scheme.
Once you have set up the pension you then need to make a ‘declaration of compliance’ to the Pensions Regulator.
What happens if I don’t bother?
It starts with a £400 fine from the Pensions Regulator for not complying. If you simply forgot and you get things sorted and backdate payments that will be the end of it.
However, if you still don’t set up a pension then the regulator will make you pay back payments to your employees and fine you 100% of the value of the payments you should have made.
It can become very expensive. For example, Swindon Town Football Club was fined £22,900 last year after it repeatedly failed to “comply with its automatic enrolment duties”.