What is Auto-Enrolment?

Auto-Enrolment is a new law which requires all employers – including nanny employers – to make sure that they have a pension in place for their employee. Most nannies will need to be automatically enrolled into the pensions scheme, and both the nanny and the employer will have to contribute to it.

Are nanny employers included?

Yes, all employers must comply with the new legislation. This includes nanny employers.

What is a qualifying worker?

A qualifying worker, also known as an eligible jobholder, is somebody aged between 22 and State Pension Age (the age at which a person may start claiming the state pension, this is currently changing in the UK, to find out yours visit the Government’s State Pension Age Calculator) who earns above the tax free allowance (currently £10,000 per year).

What if my nanny doesn’t qualify?

Even if your nanny is not a qualifying worker, you must still make sure you have a pension scheme available. This is because your nanny has the right to join a scheme if they choose to. Depending on your nanny’s age and salary you may or may not have to contribute to the pension.

What happens if I don’t comply with the new legislation?

The Pensions Regulator (the governing body for automatic enrolment) has the power to issue steep fines, with a fixed fine of £400 plus a daily fine of £50 for every day that you are non-compliant.

Can I tell my nanny not to join?

No, this is illegal and carries a steep fine if you are caught.

Do all nannies need to be automatically enrolled?

Most do; nannies who are aged between 22 and State Pension Age and earn above the tax free allowance will need to be automatically enrolled.  A nanny who does not qualify to be automatically enrolled still has the right to ask to join a workplace pension.

My nanny is part time – will I have to set up a pension for her/him?

Yes – even though your nanny might not need to be enrolled she has the legal right to join a pension. That means that you need to have a pension in place for her to join.

What if my nanny doesn’t want a pension? Do I still have to enrol her/him?

If your nanny qualifies for automatic enrolment, you are legally obliged to enrol her/him. However, your nanny can always opt out of the pensions scheme once they have been enrolled if they do not wish to take part.

How much will I have to pay into the pension?

You will have to pay a percentage of your nanny’s gross salary into her pension pot. Pension contributions for both nannies and employers are being gradually increased:

Date Employer's Contribution Employee's Contribution Government Contribution Total
Present to 30th September 2017 1% 0.8% 0.2% 2%
1st October 2017 to 30th September 2018 2% 2.4% 0.6% 5%
1st October 2018 Onwards 3% 4% 1% 8%

If you have agreed a gross wage you should not have to contribute more than 3% of the value of your nanny’s salary into the pension. If you have agreed a net wage, you may also have to pay your nanny’s contribution into the scheme.

When will automatic enrolment affect nanny employers?

Automatic enrolment is being introduced gradually. The day the new legislation applies is called your staging date. The staging date is the date, set by the government, from which employers are required to automatically enrol eligible employees into a qualifying workplace pension scheme. The employers staging date will depend on certain criteria including when they started to employ and how many employees they have.

If you started employing before 1st April 2012, you will not be affected until June 2015 at the very earliest.

When you started to employ will affect your staging date:

The costs of automatic enrolment for nanny employers.

Automatic enrolment pensions will create an additional cost for many nanny employers. If you employ a qualifying nanny, you will have to contribute to their pension.

Who pays the pension?

Three people should pay into the nanny’s automatic enrolment pension:

  • the nanny
  • the employer
  • the government

They all pay in a different amount, and the amount they pay in is increasing gradually:

Date Employer's Contribution Employee's Contribution Government Contribution Total
Present to 30th September 2017 1% 0.8% 0.2% 2%
1st October 2017 to 30th September 2018 2% 2.4% 0.6% 5%
1st October 2018 Onwards 3% 4% 1% 8%

The contributions are a percentage of the nanny’s gross salary.

Is there a cheaper way to contribute to the pension?

The % contribution doesn’t have to be paid on the whole salary, it can be paid on something called ‘Qualifying Earnings’, sometimes called ‘Banded Earnings’.

How can using Qualifying Earnings make things cheaper?

Using qualifying earnings means that you only pay a pension contribution on part of the gross salary rather than the whole salary. The nanny’s qualifying earnings are the part of the salary between the Lower Earnings Limit (LEL- currently £111 per week, £481 per month or £5772 per year) and the Upper Earnings Limit (UEL – currently £895 per week, £3489 per month or £41,865 per year).

What does that actually mean and how does it work?

To explain, let’s go through two examples: one where the employer is paying a pension contribution on the full salary, and another where the employer is paying the contribution based on the qualifying earnings.

Scenario:

The employee is earning 1100 per month gross. Calculation A is paying the pensions based on the full salary, and Calculation B is paying the pension contribution based on the qualifying earnings.

The examples below are based on the contribution rates until September 2017 and all figures are per month.

Calculation A

Gross Salary £1100.00
Amount pension contribution is paid on £1100.00
Employer's Contribution £11.00
Employee's Contribution £8.80

Calculation B

Gross Salary £1100.00
Amount pension contribution is paid on £1100.00 - £481 = £619.00*
Employer's Contribution £6.19
Employee's Contribution £4.95

*because the salary is below the Upper Earnings Limit, but above the LEL, we take away the LEL to leave the pensionable pay.

Calculation B means that you would be contributing less to the pension as a result of qualifying earnings.

Have you agreed a gross or net salary?

If you have agreed a net salary with your nanny, you will be responsible for paying in both the employer contribution and the nanny contribution. That means you would eventually be paying an extra 7% of your nanny’s salary!

What is NannyPaye doing about automatic enrolment?

We are currently setting up the most comprehensive service on the market available for you. We will be working with Nest Pensions to provide this solution should you wish to use it.

Task Do we do it for you? What do you need to do?
Set up a pension scheme Yes Provide us with the information that we request from you and authorise the NEST pension account online
Send all regulatory letters Yes Remain registered with NannyPaye Payroll and Pensions
Categorise your employee's on your staging date Yes Remain registered with NannyPaye Payroll and Pensions
Automatically enrol your employee's in the pension, if they qualify Yes Remain registered with NannyPaye Payroll and Pensions
Register with the Pensions Regulator, after you've been through auto-enrolment Yes Remain registered with NannyPaye Payroll and Pensions
Complete the Pension Regulator Declaration of Compliance Yes Remain registered with NannyPaye Payroll and Pensions
Process any 'Opt In's' and 'Opt Out's' Yes Remain registered with NannyPaye Payroll and Pensions
Continue to monitor your employee's status each payday Yes Remain registered with NannyPaye Payroll and Pensions
Keep comprehensive auto-enrolment records Yes Remain registered with NannyPaye Payroll and Pensions
Re-register with the Pension Regulator every 3 years and re-complete the declaration of compliance Yes Remain registered with NannyPaye Payroll and Pensions