HR · 18 February 2016

Demystifying auto-enrolment for Britain’s sole business owners

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Sole traders struggle to understand auto-enrolment duties

Sole traders, family businesses and husband-and-wife firms remain the small businesses that are most unclear about new responsibilities under the auto-enrolment system, according to new information released by The Pensions Regulator.

In a recent survey, the regulatory body found it most frequently received questions regarding the auto-enrolment duties of sole traders, indicating that more should be done to illuminate the complexities of the process for that sector of the workforce.

To help these small business owners navigate the auto-enrolment process, The Auto Enrolment Advisor – an independent advice service – has published a guide, in which it identifies that the auto-enrolment responsibilities of directors and company owners depends on the existence and nature of their employment contracts.

Sole traders

For sole directors of businesses with no employees, it’s likely there will be no auto-enrolment duties, however once a firm employs a worker, a sole trader will have duties to auto-enrol them, depending on the individual’s age and earnings. Sole traders who don’t believe they have auto-enrolment duties but have nevertheless received notification of a staging date should contact The Pensions Regulator to clarify the situation.

Husband-and-wife companies

A business run by a husband-and-wife team may have auto-enrolment responsibilities depending on the role of each partner within the firm. If both are co-owners and directors with employment contracts, then both will be required to be auto-enrolled onto a workplace pension scheme. If just one partner is owner without an employment contract, then auto-enrolment is not necessary. However, if the partner who isn’t a director has an employment contract, the company does have a duty to auto-enrol them.

Family-run companies

If nobody works for a business outside of members of the same family, auto-enrolment responsibilities will depend on each person’s role and whether they have employment contracts. If each family member is classed as a co-owner with an employment contract, each must be auto-enrolled. If two or more individuals have contracts, they will have auto-enrolment duties. However, if just one family member has an employment contract, or if none do, auto-enrolment need not apply.

Recognising that auto-enrolment is not a one size fits all system, and that the process remains unclear particularly amongst small business owners, The Auto Enrolment Advisor’s guide suggests seeking professional help. “The Pensions Regulator has set out how it will approach the enforcement of automatic enrolment duties, and is willing to help with any queries,” the guide said.

“Remember that an employment contract does not have to be a written document. If there is an implied contract or evidence to suggest any relationship between employer/employee and the company and its directors, then auto enrolment for the director is a must,” the guide went on to say.

Accessing finance as a sole trader can be tricky. Read on to find out about some of the common pitfalls to avoid.

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ABOUT THE EXPERT

Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.

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