February 10, 2015

Work Place Pension Reform

The Workplace Pension Reform is now being rolled out to smaller companies. So how does this affect tech startups, and what does the startup industry need to know?

Most startups don’t tend to consider Pensions for employees, when you’re just getting off the ground every penny is precious. However, people are now living longer and low pension savings are barely covering the heating bills. The Government is stepping in to make sure we’re all provided for in the future and can afford a flashy Bio-iPhone or… Who knows…?
In October 2012 the workplace Pension Reform was brought in. Initially targeting businesses with 500 or more employees, the initiative requires all employers to automatically enrol their workers into a pension scheme. From 2014-2016 smaller businesses will also need to comply, and will be introduced on a staging basis which is determined by the current size of the business.
Not all workers are eligible, but those who are must be automatically enrolled into a pension scheme which the employer and employee both pay in to. It’s the decision of the employer as to which Pension scheme they decide to use, however most startups are opting for one of several plans which are designed exclusively for small businesses. Alternatively, the can pay into the National Employment Savings Trust (NEST). The choice of scheme is limited by the size of the company. The schemes available to a company must meet the requirements for choice of investment fund, and the level of contributions that will be made given the company size.
So when will your startup need to signup? It’s important for small businesses to find out their staging date now as large fines are being slapped on companies for non-compliance. Employers can find out their staging date on The Pensions Regulator website by entering their PAYE reference into the form provided. If a company is not paying via a PAYE scheme, the staging date is set for 1st April 2017.
At ihorizon we love Xero (we’re up for an award at Xerocon this week!). It’s now launched a payroll management system that allows you to track what’s been paid to which employee, and how much costs such as Pension Contributions are impacting a business’s finances. This is an incredibly useful tool when small businesses are looking to scale their workforce. The forecasts can show you exactly what an employee hired at a certain salary will cost the business so the companies can make better informed people decisions.
Many startups employ self-employed contractors to help run their business. Whilst the Workplace Pension Reform is useful for employees, What to do if you are self-employed? Truth is you’re on your own. Your employer won’t be contributing to a pension scheme, and unsteady work can make saving hard. You should look into private pension funds and begin saving as soon as possible, don’t rely on a state funded pension alone – it won’t go far!

If you running a tech startup or employed by one, and have any questions about how Workplace Pensions Schemes will impact you, drop us an email – talk@ihorizon.co.uk

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