Hiring your first member of staff is a proud moment for any founder. It also switches on a set of legal workplace pension duties that most new employers haven't thought about yet, and they start earlier than many people expect. Here's what you need to know before that first contract is signed.
Your duties start on day one
Your legal duties for automatic enrolment begin on the day your first member of staff starts work, whether that's a full-time manager or a part-time assistant working just a few hours a week. From then on you need to keep an eye on each employee's age and earnings, because that decides what you have to do for them. Tidying up your
first employment agreements is the ideal moment to build this into the process.
The mistakes tend to follow a pattern. Some founders leave the choice of scheme until the week before the first payday and end up with whatever is quickest to set up. Others treat a casual or seasonal worker as exempt when their hours or pay bring them into scope. Most of it comes down to cost and timing, which is why it helps to
work backwards from your profit targets when you plan a hire. Employer contributions are part of what each person really costs you, and they're far easier to budget for before someone starts than after.
Getting the scheme right before the first hire
Choosing a pension scheme isn't something most founders have done before, and there's rarely an HR team on hand to weigh up the options. The scheme you choose affects what you pay, what your staff get and how much admin lands on your desk each month. Getting it wrong from the outset can mean an expensive switch later, once contributions and payroll are already built around it. Whatever is quickest to set up can feel like the safe choice under deadline pressure, but it isn't always the cheapest one in the long run.
That's why it's worth comparing options with a
whole-of-market pensions adviser rather than taking whatever one provider puts in front of you. A whole-of-market approach means an adviser isn’t tied to any particular pension products or financial institutions. They can therefore draw on everything from employer-funded auto-enrolment schemes through to group and executive schemes, meaning a business can be advised on a scheme that suits its first hire and still fits once the team has grown.
Arriving at that conversation with your likely start dates, headcount and a rough budget for contributions means you can get straight into the detail that actually affects your decision, and explain the scheme clearly to your new starter from day one.
Who qualifies, what you pay and when to report
Anyone aged between 22 and State Pension age who earns more than £10,000 a year has to be put into a pension scheme, and
the full list of who must be automatically enrolled is worth checking against your own team. Staff outside those limits can often still ask to join, and depending on their earnings you may have to contribute for them too.
Both you and your employee pay in. The
minimum contribution rates work out at 8% of qualifying earnings in total, with at least 3% coming from you as the employer, and some schemes ask for more than that. It's worth choosing a scheme you'll still be comfortable funding as the team grows, and checking that your payroll software is set up for pension deductions before the first payslip goes out rather than after.
Once your duties begin you also have to tell The Pensions Regulator what you've done. You've got
five calendar months from the day your first employee starts to complete the online declaration of compliance, and missing this can lead to fines. It's an easy job to forget in a busy first quarter of trading, so put the date in your diary as soon as you know a start date.
Pension duties are one of the less glamorous parts of becoming an employer, but they're also one of the easiest to get right when you set things up early. Do that, and your first hire can be about growing the business rather than fixing paperwork.
[Image source:
cottonbro studio on pexels.com]
Guest Contributor
