Auto-Enrolment: Why Start-Ups Need to Take NoteApril 11 2016, 0 Comments
Any business that employs fewer than 30 staff must enrol them into a pension scheme by mid 2017.
For start-ups that have hired staff already or are planning on doing so within the near future, automatic enrolment (auto-enrolment) is something you should be considering and taking action on now.
If you’re someone who procrastinates when it comes to admin obligations, no longer can you get away with putting off these duties. Auto-enrolment is predicted to be a task that could take up to six months to set up and if you neglect it, it could land you in a lot trouble.
In a study that was recently published by IS4 Profit, it was discovered that the setting up of the auto-enrolment pension schemes could in fact cost the small businesses and start-ups of the UK, a staggering £317 billion.
Auto-enrolment is a new government scheme that means it is compulsory for businesses to automatically enrol their employees into a pension scheme. The employer must also pay into the scheme, which means it will be a large expense for your set up.
Employees will be eligible if they meet the following:
- They earn over £10,000 per year.
- They’re 22 years of age or older.
- They are younger than the state pension age.
At the moment, if you own a business with over 30 employees, your staff should already be enrolled pension scheme.
Those with less than 30 staff now have until the middle of 2017 to take action.
Once enrolled, businesses must pay a minimum contribution of 1% gross pay in 2016, which will increase to a minimum of 3% by 2018. It is also worth mentioning that this will be a mandatory contribution for staff as well as the business.
Why Should You Act Now?
As the auto-enrolment pension scheme can take up to 6 months to setup, you need to ensure you’re giving yourself enough time to organise it and get everything in order. The Pensions Regulator states that many employers with a low number of staff have confessed that they have no setup costs overall.
As a start-up, you will need to take into account the costing as it will now affect expenses when it comes to employing new staff, both in terms of their salary and the time you put into them.
In light of this, auto-enrolment is likely to have an impact on recruitment decisions. With this change only affecting those who earn over £10,000 a year and not applying to contractors, it may change the way companies approach hiring. As a result, it could see a rise in businesses wanting hire part time staff or looking to solutions such freelancers in order to cut costs for themselves.
How to Ensure You’re Ready
To begin with, you will need to find out when your staging date is on the Pensions Regulator’s website. There are several checklists available on the website that can help you through this process. When It comes to set up, it can be confusing financially as well as from a staffing point of view, therefore it is always worthwhile that you seek professional advice to ensure a streamline set up.
Only seek advice that works with your budget but it doesn’t have to be a large expenditure. You simply need to guarantee that you’re complying with the new laws that are being emplaced.
Keeping your start-up running smoothly is crucial. Financial laws are not to be taken lightly, which is why you need to conduct your accounting in the most efficient way. You will also accurately be able to assess how much money you will need to set aside for these changes through organising your budgets within your small business accounting software.
Whatever you decide to do with auto-enrolment, it is vital you act now rather than leave it until it is too late. You don’t want to be hit with penalties and rather than sweeping this change under the rug, act now before you pay the price.