Being a small business owner is a pretty thankless task. Some days it can feel like you do nothing more than pay other people and make executive decisions about the coffee machine! This year, about half a million small business owners will need to get their heads around the Government’s new wheeze called “Automatic Enrolment”.
What is it?
Automatic Enrolment happened because the powers that be in Westminster saw that no-one was saving up for retirement. And gone are the days of comfy final salary schemes. And irritatingly enough, people are daring to live for longer. So how on earth is everyone going to manage when they retire and there are no big handouts from the State OR a company you worked for for about 100 years?
Enough of the carrot, here comes the stick. Every business has to provide a pension for its staff – whether you’re British Airways, the local chippie or even if you employ a nanny or carer.
When?
It depends. There’s a decent number of firms who employ small numbers of people (anything up to 30) whose staging date (the date the firm needs to have everything prepared by and needs to start to comply with automatic enrolment) has already gone.
These small firms started to comply in June 2015 and instead of now being based on how many staff an employer’s got, it’s now based on their PAYE reference number.
All businesses should have had a letter from the pensions regulator confirming their staging date however if you haven’t, you can check your staging date on the regulators website.
If you’re a small business who employs between 1 – 30 people, it’s important that if you don’t know your staging date you check sooner rather than later. Last we heard, about 20% of smaller businesses had not complied and you will get fined for this.
Check your staging date here.
Nightmare. More paperwork. What will it cost?
When it comes to cost there’s a few things to bear in mind.
Firstly it’s likely you’ll have to make some pension contributions. These usually start at 1% for employers who are staging now but are increasing to 2% from 6th April 2018. From April 2019, every employer will have to pay at least 3% of salary into this pension for staff.
Next it’s probably worth thinking about the tools you use to pay your staff and whether it’s worth paying for an upgrade. There are payroll software tools out there that make the automatic enrolment process more straightforward and considering the time they might save you they’re probably worth thinking about paying for. We use Xero at Boring Money and it works pretty well and doesn't cost the earth.
Here's an idea of how much it may cost.
So how do I go about this?
Let’s try and keep this simple. Here are the key steps:
Choose someone to provide this pension
The first step is, if you’ve got a pension in place, to check with your existing provider if you have a scheme which does the job. There’s a number of questions you need to ask your existing provider to check whether your existing scheme will comply.
If you’re the ‘little guys’, one of the first things you might want to do is pick a pension scheme. Now you’ve got choices, but we’ve whittled it down to six main providers we think do a pretty decent job AND deal with smaller firms. These six providers are:
* Aviva
* NEST
* True Potential
* Peoples Pension
* Standard Life
* Johnson Fleming
Watch our video for some quick facts on each of them, who we think they’ll suit, and why. We chose them because they’re big, solid and importantly they are happy to deal with smaller businesses.
Work out how to integrate this with payroll
This can be tricky but the starting point is to check whether your existing payroll bureau (or software) helps you comply with a lot of the ongoing processes you need to complete to tick the automatic enrolment box.
Some do, and some don’t, and some you need to pay a little more for them to switch on their automatic enrolment functionality.
There are a decent number of people who use the free tool from the HMRC. Now whilst this is ‘free’, it doesn't integrate or talk to other systems and providers, which might mean that the time you spend on manual re-keying will probably mean it’s worth investing in a decent payroll software to help you manage automatic enrolment and save yourself bucketloads of time.
Think about what you need to do so you don’t get rapped on the knuckles (or worse!)
Apart from choosing a pension and making sure your payroll software does the job, you also have to complete a bunch of tasks to make sure that you comply with these new rules.
Not completing these tasks can result in fines for smaller businesses which are potentially painful (they start at £400 as a one off but can be up to £500 per day for small businesses).
Nearly all of these tasks are time sensitive and have to be done by a deadline.
For more information about the tasks you need to do you can check out the pension regulator’s website.
Good luck. If you need some help along the way we suggest you check out AE In A Box OR find a financial adviser.