We have probably all seen the adverts on TV about auto-enrolment. But what is it and what does it mean?

The Government has recognised that as people live longer and fewer young people are coming through the system to cover the state pension bill, there is going to be a funding crisis.

As part of the Pensions Act 2008, employers will have to put staff into a pension scheme. Reading between the lines, having your own individual pension will become vital, as it is easy to envisage the state pension being cut in real terms in years to come.

So what does this mean for farmers employing help, or even children? If a person regularly works for you and earns over £112 a week, or receive benefits or expenses from you, then you must set up a PAYE scheme.

Once that process is complete you have to set-up a pension (auto-enrolment) – if you have PAYE in place you might have had to set up a pension scheme already.

You must select the pension provider (NEST is the Government-backed scheme) and enrol the employee.

The employee has to pay 1% and the employer 1% of the qualifying earnings (for the 2016/17 tax year it’s anything over £5,824 and up to £43,000). By April 2019, the employee will have to pay 5% and the employer 3%. The money is taken out of the farmer’s account by direct debit on the same frequency in which the employee is paid.

It sounds complicated but it’s not. You can approach your local accountant with the enrolment date/information and they should take care of the donkey work – it’s their job. There have been some reports of hefty setup costs. If this happens, shop around. You can have an accountant doing payroll and a separate accountant doing the end-of-year tax returns.

The pension schemes are another element in the increasing cost and complexity of hiring staff. This needs to be reflected in the future planning on the farm – can I reduce staff, contract out work etc? Farmers who employ their children and give them a wage funded out of their own pocket need to also reflect upon the importance of an individual having their own pension in years to come, given the long-term uncertainty over the state pension.

Please note the advice given above is very general and cannot not be relied upon as each individual business case would need to be assessed. MCA Chartered Accountants cannot accept responsibility for decisions based upon this article.