Salon Owners – auto-enrolment pension | a recap

As a Salon or Barbershop owner, you need to consider auto-enrolment if you employ staff – and constantly revisit it. It’s a very complicated area to get your head around, so we’ve put together a recap for you.

What’s auto-enrolment

Under the Pensions Act 2008, every employer in the UK must put certain staff into a pension scheme and contribute towards it. This is called ‘auto-enrolment’. If you employ at least one person you are an employer and you have certain legal duties. We talk about the practicalities of how this affects you as salon owner below.

Who needs to be auto-enrolled?

You need to assess each of your employees and put them into one of three categories:

Category 1 | Eligible jobholders

These employees must be auto-enrolled and you must contribute to their pension as soon as they trigger all of these 4 criteria:

• • Aged between 22 and state pension age
  • Working in the UK
  • Earning more than the minimum earnings threshold, which at the moment is £10,000 per year (£768 per 4-weekly pay, or £833 per monthly pay)
  • Is not currently in a qualifying pension scheme

Category 2 | Non-eligible jobholders

These employees do not have to be auto-enrolled but can choose to opt in to your Salon’s pension scheme. If they do opt in, you have to also make contributions to their pension scheme:

• • Aged between 16 and 21, or between state pension age and 74
  • Working in the UK
  • Earning more than the minimum earnings threshold, which at the moment is £10,000 per year (£768 per 4-weekly pay, or £833 per monthly pay)

Category 3 | Entitled workers

Employers must ensure that entitled workers have access to a pension scheme if they request one, but you are not required to auto-enrol them nor make any contributions to their pension scheme:

• • Is aged between 16 and 74
  • Is working in the UK
  • Earns less than the minimum earnings threshold, which at the moment is £10,000 per year  (£768 per 4-weekly pay, or £833 per monthly pay)

Contribution %’s

Under law, a minimum contribution of 8% of the employee’s “qualifying earnings” must be made into their pension scheme, of which you as salon owner must contribute a minimum of 3% (with your employee contributing the remaining 5%).

What counts as “qualifying earnings”

For auto-enrolment, qualifying earnings includes all taxable income: basic pay, commission, bonus, overtime, SSP and SMP but excludes benefits (BIKs) and any expenses repaid to them.

Example

A stylists usually earns £750 basic per month, but this month also earns overtime of £50 and a bonus of £200. Therefore qualifying earnings are assessed as £1,000. If the stylists is not yet in the pension scheme but is now assessed as an “Eligible Jobholder” auto-enrolment is triggered that month, since they have breached the £833 minimum.

What earnings do you pay contributions on?

You’re not required to pay the contribution % on the employees whole salary though!

Instead, you are only required to pay the % on each employee’s earnings above a certain amount, which is set by the Government each year. Currently, the % is only applied to earnings above £6,136 pa (£472 per 4-weekly pay, or £512 per monthly pay)

Example

One of your stylists is earning £12,000 per year, so the 8% requirement is applied to £5,864 of their wages (i.e. £12,000 less £6,136).

Your responsibility as salon owner

• All salon owners with at least ‘one worker’ regardless of their age and earnings must register online with The Pensions Regulator
• You have a legal responsibility to let your staff know about auto-enrolment, even if they’re not eligible
• If an employee becomes eligible, you must auto-enrol them into your pension scheme (although they can opt back out within a month without any contributions being made by either of you)
• Every 3 years, you have to re-enrol any staff still working for you who previously opted out (if they still qualify for auto-enrolment) <- this is one point many owners miss!

Seasonal Workers

Most salons & barbershops take on summer and Christmas temps and these “seasonal workers” also have to be assessed to see if they qualify for auto-enrolment.

However, if you know they will be working for your salon for less than three months, you can use what’s called “postponement” to postpone your legal duty to assess staff for three months – and you do not need to put them into your pension scheme (unless they ask to).

When else can you postpone?

There are 3 other times you can postpone auto-enrolling for 3 months:

1. If you’re a new employer
2. A staff member’s first day of employment (good especially if they’re on a probation period)
3. When an existing employee first becomes eligible for auto-enrolment

In each case, you must let the employee know, but be aware that if they want to opt in (and if they’re eligible) you have to honour this.

Who else does not need to be auto-enrolled?

The following can also be excluded by you from auto-enrolment:

• Those in a notice period to leave
• Those who have already voluntarily come out of a pension scheme in the 12 months before the auto-enrolment duty arises

Who can advise you on what pension scheme to set up?

Like the majority of accountants, Salonfrog is not allowed to recommend pension schemes to its Clients. Instead, you have 2 options:

• Join one of the Government ones (which most of our Clients do): Nest, Now or People’s Pension
• Ask an IFA

Last words

OK, it’s complicated. So if nothing else:

1. Build it into your new staff process
2. Postpone whenever you can
3. Build it into your payroll process (especially the trigger process)

And don’t think it will go away. There’s some serious fines out there for not doing it.

The Pension Regulator has a good guide here:

https://www.thepensionsregulator.gov.uk/en/employers

Or answer a few questions using the Regulator’s on line help tool:

https://www.thepensionsregulator.gov.uk/en/employers/new-employers

Salonfrog services

We have 3 services which are related to auto-enrolment:

1. As part of our auto-enrolment bolt-on service, we offer a one-off fixed fee to help you set up your scheme, once you’ve chosen which pension provider you want to use.
2. Included in our payroll service, we calculate the pension contributions of you and your staff each pay run; letting you know how much you need to pay each time to your pension provider.
3. As part of our pension admin bolt-on service, we take care of updating your Pension provider for you after each pay run.

• Posted on September 19th, 2019 in General