How will auto-enrolment impact contractors?

Tuesday, 27 November 2012 06:41

Auto-enrolment could impact on contractors

Auto-enrolment could impact on contractors

At the start of October 2012, the government launched its auto-enrolment pension initiative as part of efforts to help all workers be able to make adequate financial preparations for retirement.  As auto-enrolment is set to see each employer automatically enrol staff on to a workplace pension scheme, now is the time for contractors to consider what impact it will have on their operations.

While auto-enrolment is being rolled out gradually – only the UK's largest businesses are currently required to comply and it is thought it will be in place across the country by 2017 – employers of whatever size ought to be aware of what obligations they will have to meet now.

Auto-enrolment is unlikely to have a direct impact on contractors or employers with smaller number of workers (typically 49 or less) on their PAYE scheme  until June 2015, but knowing in advance its affects will enable you to make any necessary changes to your business model in plenty of time.

First of all, let's take a look at the general implications of auto-enrolment. Perhaps the most notable impact for employers is that they will have to contribute at least one per cent, which is set to rise to three per cent of each worker's eligible annual earnings into a pension pot, by 2018. The employee themselves, meanwhile, will also pay a personal contribution set at a minimum of one per cent of their annual salary, which will rise to four per cent by 2018, with an additional one per cent in tax relief being added by the government.

All eligible workers will automatically be incorporated in to the pension scheme, though it's worth pointing out that they have the right to opt out at any time if they so wish. While the initiative is designed to make it easier for employees to start saving for retirement, contractors may find they have a little more work to do to ensure they follow the auto-enrolment rules.

Depending on whether they operate as a limited company or wish to utilise the services of an umbrella company, contractors may have to take a different course of action in order to meet the requirements imposed by auto-enrolment.

Umbrella companies – Contractors that use an umbrella company will find they are included into auto-enrolment when the service provider – not themselves – reaches the applicable staging date.

It's thought that most contractors using these services will become auto-enrolled between the start of 2013 and the following spring. If you are using this payment vehicle you may want to check with your provider’s staging date – to see how it will affect you.

Limited companies – As contractors who set up as a limited company tend to be their only employee, the criteria for being part of auto-enrolment, as a whole, is not something that will apply to them. This is largely because agencies contract their services through the limited company, as opposed to as an individual.
However, those that have additional employees – which could include a partner who is working as the company's secretary – may find they are incorporated into auto-enrolment at some point and, as such, have to offer a workplace pension scheme.

Of course, if you're busy securing contracts and working on current projects, you might not always have as much time to devote to staying on top of accountancy tasks and forthcoming regulatory changes as you may like. In such cases, you might find it's a good idea to seek assistance from a payroll and accountancy service provider.



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