From 1 October 2017 all UK employers are legally required under the Pensions Act 2008 to automatically enrol their workers into a qualifying pension scheme and to contribute to that pension.
For those employers who registered with HMRC before 1 October 2017, their staging date will be up to February 2018. If you have already registered with HMRC as an employer and want to find out by what date you need to comply with the new regulations and when your staging date will be, please contact Parental Choice at email@example.com and we will be able to help.
Once you know your staging date or you are a new employer, you will have six weeks from that date within which to register your employee, provided that she is eligible, with a qualifying scheme and start paying contributions. Parental Choice can help with all the administration for you.
An eligible worker is one who:
- Is not already in a workplace pension scheme;
- At least 22 years old;
- Has not yet reached State Pension age;
- Earns more than the minimum earnings threshold (currently £10,000); and
- Works or ordinarily works in the UK according to their contract.
A nanny who does not qualify to be automatically enrolled still has the right to ask to join a workplace pension.
If your nanny qualifies as an “eligible jobholder” (see criteria above), as an employer, you will be expected to pay a minimum contribution into a pension scheme based on your nanny’s “qualifying earnings”. Qualifying earnings are currently the amount between at an annual gross salary of £5,824 to £43,000 (for tax year 2017 – 2018). The pension scheme must be a qualifying scheme, meeting certain Government standards.
Parents can choose whichever qualifying scheme they wish to enrol their nanny in but for those who are time poor and want a practical scheme that will be ideal for nannies who can transfer any accrued contributions when they leave your employment, the Government have created NEST (the National Employment Savings Trust Corporation). This is an independent trust that has a public service obligation to accept all business and has set charges. Alternatively Standard Life’s Good to Go scheme is open to all employers, including those employing only one person.
Obligations under the Pension Act 2008 apply whether the employee is temporary or permanent as long as they qualify as an eligible worker. Please note that anyone employed for less than three months will not need to be enrolled by their employer automatically, although they can join of their own accord and attract employer contributions too.
Pension contributions will be based on your nanny’s gross earnings, including overtime and bonuses within the qualifying earnings band. It is therefore very important to agree a gross salary with your nanny.
- Currently, employees have to pay in 1% of their gross salary, including tax relief, into the pension scheme whilst employers have to contribute another 1%.
- From April 2018, the employer contributions will increase to 2% while the employee’s contribution will increase to 3%.
- From April 2019 the total amount which will have to be paid into the scheme is due to rise to 8%, of which the employer pays 3%, the employee pays 5%.
These minimum percentages do not apply to your nanny’s entire salary but only on what they earn over a minimum (currently £5,824) up to a maximum limit (currently £43,000). For example, for a nanny who earns £27,000 a year, the minimum percentages apply to the difference between £27,000 and £5,824, which is £21,176. In this example, the nanny would currently have to pay £211.76 per year from his/her salary and the employer would have to pay £211.76 per year. The contributions are taken from a nanny’s gross salary. If you agree a net salary, then the consequence is that either parents will end up paying more overall. If you agree a gross salary then nannies will receive slightly less net pay.
If your nanny does not want to be enrolled in a pension, you are still legally obliged to enrol her but once registered she will have a month in order to opt out from the day she officially becomes a member of the scheme. So an employer will still have to set up a pension scheme and register before the employee can opt out. Any contributions made to the scheme within that month can be refunded to the nanny at the time of their next payroll. Even if a nanny opts out, an employer will still have to keep records. Employees who opt out can rejoin at any time and employers will also have a duty to automatically enroll employees back into the scheme approximately every three years provided that the employee is still eligible.
Employers will not be able to ask potential nannies at interview or current nannies if they plan to opt out of auto-enrolment, nor will they be able to offer inducement to opt out such as higher salaries or one-off bonuses as this is illegal and can result in a substantial fine.
Parental Choice is working on your behalf should you need any more information on what auto-enrolment will mean for you. Not only can we can help you with the calculations and determining the financial implications for your family, but we can also guide you through the auto-enrolment process and deal with the administrative hassle of determining the amount of contributions as well as of registering with a qualifying pension scheme.
Parental Choice will ensure that you are compliant with the legislation when it applies to you.