In 2012 the UK government introduced the Pensions Act which requires all employers to provide a workplace pension. Whilst auto-enrolment will affect the country’s biggest employers first, it will soon roll out to include everyone who hires staff in the UK, including those who might not consider themselves employers, but take on domestic help such as a nanny.
The news is likely to come as a shock to many working class couples, already struggling with the costs of childcare and running a household and who never dreamt that they would be making provisions for their nannies retirement.
If the nanny was employed for only 6 hours per day, Monday to Friday, and paid the minimum wage of £6.31 per hour they would fall within the scope of the new law, as their earnings exceed the threshold of £9,440 a year (this is the 2013-14 limit).
The new regulations are being introduced over a period of 6 years starting from 2012 for the largest companies, then with those employing less than 50 employees starting in August 2015. The amount put into the employee’s pension pot will be a combination of the employee’s contribution, the employer’s contribution and tax allowance from the government. The percentages will be gradually increased until October 2018 as follows:
|DatesJoining pension scheme up to||Employer (%)||Employee (%)||Total (%)|
|30th Sept 2017||1||1||2|
|1st Oct 2017 – 30 Sept 2018||2||3||5|
|1st Oct 2018 onwards||3||5||8|
*These are the minimum levels of contribution.
Therefore based on a gross salary of £20,000 the minimum cost to the employer for the pension provision will be £143 per annum until 1 October 2017 when it will rise to £286 per annum and finally from 1stOctober 2018 by £429.
Please note: If a net salary is agreed with the employee then the employer would result in having to pay both the employee’s pension contribution and the employer’s contribution.
Auto Enrolment is clearly going to be a burden for all smaller employers including working families employing a nanny to provide childcare.
Some mothers have attacked the new pension scheme, with one mum on www.mumsnet.co.uk writing: “It will tip me over the edge and put one nanny out of work. People will put their nanny on the books for some £500 per month, call her an au pair and then pay the rest in cash. Proper on-the-books nannies will become a privilege of the rich. Treating parents like a profitable business is outrageous.”
There will also be an extra administrative burden for the family such as;
- Employees have to be monitored and notified when they have to be enrolled into a scheme which can be on a monthly or a weekly basis
- All Workers have the right to opt out of a workplace scheme, but even then the employer will have to keep paperwork.
Please note: If a net salary is agreed then the family (employer) would result in having to pay both the nanny’s pension contribution and their own as the employer.
QTAC Payroll Software can play a vital part in handling Auto Enrolment, helping to make Auto-Enrolment compliance easier by providing some key features like:
- Assessing eligibility of a workforce
- Manage pension schemes, data and payments
- Producing communication/letters to employees
- Manage joiners and those opting out of the scheme
- Provide communication with Pension Providers
For more information and help with the implications of auto-enrolment whether a household employing a nanny or any other smaller business, contact the team at Qtac on 0117 9353500.
Alternatively download our Free Guide to Auto Enrolment