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.
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:
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:
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:
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.
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)
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
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:
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:
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:
OK, it’s complicated. So if nothing else:
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:
Or answer a few questions using the Regulator’s on line help tool:
We have 3 services which are related to auto-enrolment: