UK Fact-File Part 6:
Individual Business Employment Issues
6.1 UK Individual Business Employer Responsibilities
The duties and responsibilities of individuals in
business as regards employing people
Any company, or sole trader who employs staff must issue
a formal contract of employment. This is a legal requirement.
Employees must be paid via the PAYE tax system and income
tax must be calculated and deducted at source from an employee’s
wages. All employees must also pay national insurance contributions
(NICs), which are also deducted at source by the employer.
Income tax and NICs are remitted to HMRC by the employer.
As well as the employee’s NIC deduction, employers are required
by law to make an employer’s NIC payment. The NICs go towards
the provision of a range of state benefits and facilities.
Further information on the PAYE and NIC rates and thresholds
for 2010/11 can be found on the HMRC website: http://www.hmrc.gov.uk/rates/nic.htm.
When in power, the Labour Party had announced a planned 1%
NIC increase, to take effect in April 2011. The Conservative-Liberal
Democrat coalition government which assumed power following
the election partially rolled the impact of this on businesses
back by raising the threshold at which the rate increase kicks
in, meaning that less employees are affected.
For those above the threshold, however, the increase will
go ahead as planned. It was additionally announced by the
new government that the threshold at which employers start
to pay National Insurance will be raised by GBP21 per week
above indexation in April 2011, and outside of London and
the South East of England, new businesses will be exempted
from up to GBP5,000 of employer contributions for each of
the first 10 employees taken on. Further details on the changes
announced in June 2010 are available here.
At present, employers are not legally obliged to set up a
pension scheme though they may be obliged to provide access
to a pension scheme run by a third party – this depends on
the size of the business.Companies with five or more employees
have, in recent years, been required to designate a stakeholder
pension scheme, unless they offer access to a good value company
pension arrangement as an alternative. The employer is not
obliged to contribute to a stakeholder pension scheme; the
scheme is administered by the pension provider and contributions
are deducted by the employer from payroll and remitted to
the scheme administrator.
There are different kinds of pension scheme and these are
outlined below. However, from 2012 employers will be legally
obliged to provide a Workplace Pension , and to make employer
contributions to said pension.
From 2012, the Pensions Act 2008 requires that all employers
will have to provide a qualifying workplace pension arrangement
for all qualifying workers. Eligible employees (currently
defined as those earning between GBP5,035 and GBP33,540 per
year, although this figure is likely to be adjusted before
the 2012 introduction date) will need to be automatically
enrolled into the workplace pension arrangement – though they
can opt out – and employers will be required to make a minimum
contribution to the pension arrangement of their workers.
The employer contribution for this new ‘workplace pension’
will end up at 3% of earnings, but this will be phased in,
starting initially at 1%, and then increasing to 2%, and finally
3%, with the employee’s contributions to be similarly phased
in.
This new legislation is aimed at ensuring everyone makes
a contribution to providing for retirement.
Corporation tax relief on contributions will be available,
or income tax relief if not an incorporated company. The scheme
will be gradually introduced in 2011, but the legal obligation
will commence the following year.
An employer can set up an occupational pension scheme. These
can be either a final-salary or money-purchase scheme. With
the former, the employer must make up any deficit in funds
when the employee reaches pensionable age.
Employers are not obliged to provide health care schemes
to their workforce. However, it is not unusual for employers
to provide health care schemes to key or senior workers. In
such cases, the employer usually pays the contributions for
a group healthcare scheme and the contributions attract tax
relief at Corporate or Income Tax rate.
Sole traders may consider taking out a personal healthcare
plan from one of the many insurance providers in the UK. Premiums
would normally attract tax relief and benefits include cover
in the event of short or long-term illness.
The National Health Service (NHS) is free at the point of
treatment to all UK residents and as part of the European
Union, citizens of EU countries also have the right to treatment
via the NHS.
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