Auto Enrolment – When is an employer not an employer?
For the past eight months, the most frequently asked question I have received regarding auto enrolment from our employer clients is “does this apply to us?”
This is particularly frequent from those companies comprising husband and wife teams or those with one or more Directors.
The simple answer depends on whether the company (and the staff within), meet criteria set out by The Pensions Regulator, who are tasked with overseeing compliance with the rules by employers.
The Regulator has confirmed that automatic enrolment duties don’t apply when a company or individual are not considered an employer. This is relevant if the company meets one of the following criteria:
- You’re a sole director company with no other staff
- Your company has a number of directors, none of whom has an employment contract
- Your company has a number of directors, only one of whom has an employment contract
- Your company has ceased trading
- Your company has gone into liquidation
- Your company has been dissolved
Automatic enrolment will apply if more than one director has a contract of employment.
If any of the above apply to your company then you must inform The Pensions Regulator either in writing or online at www.thepensionsregulator.gov.uk/notanemployer .
Here are a couple of recent examples I have come across – the names have been changed to protect the innocent!
Example – Husband and Wife Company
Jim, aged 52 runs a small Limited Company of which he is the Managing Director and he employs his wife Mary, aged 48, as an administrator. She earns £10,500 per year.
The rules for auto enrolment mean that a workplace pension has to be set up by the company’s staging date for the one employee, Mary as she is eligible to be enrolled (over age 22 and under age 65 and earns more than £10,000 this tax year). Jim would have to pay into the plan based on the set minimum contribution levels. Once enrolled, Mary can opt out of the scheme should she wish. If she opts out she must be opted back in every three years, and so on.
If her salary was under £10,000 per annum then Jim would not have to set up a workplace pension as she does not meet the income criteria. However, if she earns over £5,824 per annum then she can request to join a scheme which Jim would then have three months from the request to set up.
Example – Two Directors and No Staff
Andrew and Stephen run a small software company and are the sole Directors. As they contract their services out to corporate clients, they don’t employ any staff. Neither have official contracts of employment.
In Andrew and Stephen’s case as they have no staff and they themselves have no contracts of employment, they do not need to set up a workplace pension. They do need to confirm this with the Pensions Regulator, however.
For further information regarding workplace pensions, please contact Gary Stirling on 01383 721421 or by email firstname.lastname@example.org
Gary Stirling is a Senior Financial Planner with Condies Wealth Strategies – Financial and Business Advisers with extensive experience in all areas of personal and corporate financial planning.