Since the end of 2017, it’s been a legal requirement for all businesses (employing at least one person) to automatically enrol qualifying staff into a workplace pension scheme and to make a minimum contribution on their behalf.
Auto enrolment is the government’s solution to get more people making a reasonable provision for their retirement, so they will have the best possible income and support when they stop working.
With an ageing population and increasing average life expectancy in the UK, introducing legislation requiring employees to save towards a pension makes sound economic sense.
But is auto enrolment discouraging some start-ups and smaller businesses from taking on new employees?
It’s something we’ve heard more than once from business owners we’ve met. Typically, a comment along the lines of: “I’m not going to take on an employee because it’s expensive and involves additional paperwork I just don’t have time to deal with.”
But is it? Does it? In short, no.
Let’s take a minute to look at and dispel both these myths:
1) “Workplace pensions are expensive for employers”
Firstly, as an employer, you don’t have to contribute to an employee’s pension scheme if they earn less than £116 per week. Secondly, however much an employee earns, you only pay contributions on their pre-tax earnings over £5,876 (there’s an upper threshold of £45,000 a year).
Currently, employers are required to make a minimum contribution of 2% on earnings over the minimum threshold, so for an employee earning £12k per year / £1k per month, the cost to the employer is only about £10 per month. It’s true that the employer contribution is set to increase to 3% from 6th April 2019, but even so, based on our example employee who earns £1k per month, their employer will still only pay about £15 per month.
2) “Workplace pensions are time-consuming to manage & administrate”
They certainly needn’t be.
There’s no denying that administrating a workplace pension scheme does require employers to set aside additional time each month. While it’s not an onerous task, for start-ups and smaller businesses with limited resources, the idea of more paperwork can be used as an excuse for not employing staff.
But for a small fee, most accountants – including Inca, will be happy to take care of all aspects of a workplace pension scheme, including making payroll deductions and uploading all data to the selected pension provider, giving the employer a completely handsfree solution.
Given the above then, there’s really only one question you should be asking:
Can Your Business Afford NOT to Employ Staff?
You might be a ‘one-man band’, outsourcing work to freelancers or associates when you need to – and that’s fine. There’s nothing wrong with running your company as a ‘lifestyle’ business, but if you have ambitions to grow it, you’re not going to be able to do that on your own.
The only way you’re going to take your business to the next level is by employing staff and building a team who will help you get there.
An employee – like any other business asset, will come at a price. But the cost of a good employee is far outweighed by the potential they will bring. The comparatively tiny cost of a workplace pension certainly shouldn’t dissuade any business owner from taking on staff.
For more information on workplace pensions, go to: https://www.gov.uk/workplace-pensions/joining-a-workplace-pension
Don’t let concerns over workplace pensions hold your business back. Inca can provide a fully managed service, taking care of all aspects of the administration of workplace pensions for all your employees, leaving you free to get on with making sure your business achieves its full potential.