Employers must contribute to the pensions of their domestic help or face a tax evader's fine under the government's automatic enrolment scheme says Chris Cook
Families employing domestic help have been caught by surprise. Under the government's automatic enrolment scheme, they will have to fund pension contributions for nannies, cleaners and gardeners whose pay exceeds ’10,000 a year, or face a ’400 fine.
In 2012 the government introduced its automatic enrolment scheme which requires every employer in the UK to enrol their eligible workers in a pension scheme and to start contributing. The new employer duties are being implemented month by month over a five-and-a-half-year staging period that started on 1 October 2012.
The automatic enrolment scheme doesn't just apply to businesses: people employing at least one person will be required by law to ensure that they are enrolled into a workplace pension. This news is likely to come as a shock to many who might not consider themselves employers, but take on domestic help such as a nanny or carer.
While larger employers were first introduced into the scheme by the government, smaller employers (including those who only employ one or two people) over the next two years will gradually be obliged to offer their staff pensions under the auto-enrolment programme. Employers will initially be making contributions of 1 per cent, increasing to 2 per cent in October 2017 and 3 per cent from October 2018.
If your worker is over the age of 22, works in the UK and you pay them more than ’10,000 a year, you must set up a pension for them and start to pay into it. Even if a worker does not meet the eligibility criteria for auto-enrolment, they may still be entitled to opt into the scheme by serving the employer with a notice requesting that they be enrolled into a pension scheme.
Elderly or disabled people whose carer is organised through the local authority or an agency are likely to find that they don't need to make pension contributions because the agency does that for them.
The Department of Work and Pensions has assigned 'staging dates' to all employers from which they will be obliged to start paying into a pension scheme for their employees. Those with fewer than 50 employees will have staging dates between 1 June 2015 and 1 April 2017.
All employers should receive a letter from the DWP twelve months ahead of their staging date informing them of their staging date and how to choose a pension scheme. An online tool is available on the pension regulator's website for employers to find out whether they are affected, what their staging date is, and how much they must contribute.
The website gives guidance on the information which employers are required to provide to their workers about auto-enrolment, including details of the contributions they will receive and information about the right to opt out.
There are fears that many families will try to avoid having to pay a pension to their domestic help by paying them cash in hand or asking them to become self-employed. Those who do not declare to HMRC that they are employing domestic help will be charged with tax evasion.
In addition, employers who fail to comply with their enrolment obligations will face a penalty charge of ’400. If they continue to ignore their duties, they can face an escalating penalty of between ’50 and ’10,000 per day for failing to comply.
It is clear that tough sanctions will be imposed against employers who do not comply with the auto-enrolment scheme and that those individuals who employ domestic help will need to ensure that they are aware of their new obligations.
Chris Cook is head of the employment team at SA Law