Today, more and more SMEs are calling on contractors to carry out tasks where they either don’t have the skills in-house or where the amount of work required simply doesn’t justify another employee on their books. Alternatively, seasonal or workload related peaks and troughs may be the reason for taking on a contractor. Either way, this way of working offers great flexibility to small and medium sized businesses and removes the headache of a full-time overhead. However, the big question on many employers’ minds at the moment is the impact that auto enrolment will have on their contracting arrangements.
At this moment in time, the catch all for auto enrolment is that any ‘Eligible Jobholder’ will fall under its spell. In effect this means that no matter what job someone does and no matter whether they are full-time, part-time or permanent, they will be affected (providing they fall within the qualifying requirements for age and earnings). However, the situation for contractors is just a tiny bit more complicated.
Umbrella company contractors
If a contractor comes to your business from an umbrella company it will be the responsibility of the umbrella company to auto enroll the contractor when their time comes in the staging process. When they are first required to implement auto enrolment, like all other ‘employers’ will depend on their number of employees.
What this means is that smart contractors are starting to see auto enrolment as an effective and attractive tax planning tool. This opens up opportunities for contractors to negotiate a salary exchange whereby they get payment from their contracts into their personal pension funds, avoiding the payment of income tax and benefiting from the government contribution.
One-man (or woman) bands
One-man or one-woman bands on the other hand are quite different. With current legislation there is no obligation for a company with one employee to get involved in auto enrolment either personally or via the person for whom they are working. Check out our assessment tool to find out if that includes you.
This is good news and bad for contractors. Believe it or not, there are certain contractors who see this as an invasion of their freedom. However, there are others who see a great opportunity to plan for their retirement in a tax efficient manner. So like everything in life, auto enrolment in the contracting world has its fans and its foes.
From your point of view as someone who benefits from the services of a contractor, you can pretty much set your mind at ease that you have little or nothing to worry about. This is because if you’re using contractor services through an umbrella company, they’ll look after the burden for you and if you’re employing a solo contractor, they won’t be affected.
If you are feeling the effects of auto enrolment and could do with a helping hand, why not get in touch?
