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Micro Entities and Close Companies could be Exempt from Auto Enrolment

January 2015

For a long time, we have been kept in the dark about how micro entities and close companies will be affected by Auto Enrolment. The Pension Regulator recently announced that a business is exempt from Auto Enrolment where it has no “workers” or “employees”.

How are micro entities expected to deal with Automatic Enrolment?

A micro entity company must meet at least 2 of the following criteria:

Representative bodies have been pressing The Pensions Regulator for clarification on companies who have a PAYE scheme — and therefore have an Automatic Enrolment staging date — but the only entries in the payroll are the business owners themselves. They have payroll entries to ensure they can draw funds from the business on a regular basis and protect their state retirement pension position, but have no other relationship with the business except as owners and probably directors.

In this case, the legislation which refers to ‘staff’, ‘workers’ and ‘employees’ is misleading and it could be disputed whether these members should be classified as ‘staff’, ‘workers’ or ‘employees’ and therefore whether Auto Enrolment is applicable.

How are close companies expected to deal with Automatic Enrolment?

When a company is a UK resident company and has five or fewer shareholders/owners, the business is labelled a “Close Company”.

The Pensions Regulator recently confirmed that as long as the business has no one on its payroll except for its owners, it has no obligations under Automatic Enrolment. Since none of the members are “staff” the Automatic Enrolment process does not have to apply to them. It will be up to the owners to determine if they wish to enrol themselves in an eligible pension scheme.

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