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Paying pension for a small business

| 30/08/2017 | 0 Comments

I have a question on small business pension requirement. If you are working but not receiving a salary as you are putting everything into making the company a success, what are your pension responsibilities and how do you determine the amounts?


Auntie’s answer: To clarify this question, I confirmed with the reader that he is the only employee of the company. There are shareholders who contribute to operating expenses but they have not received any salary or dividends. Based on this information, an official with the Department of Labour and Pensions addressed this query.

To start with, it was explained that under the National Pensions Law, each employer and employee, including a self-employed person, must contribute to a pension plan.

“Similar to the traditional employee and employer requirement, the self-employed person must also contribute 10% of his earnings. The National Pensions (General) Regulations also state that the contributions shall be paid ‘at least every month and the amount of the contribution shall be based on his earnings over the period since he last made a contribution’,” the official said.

“As a result, the self-employed person must establish a pension plan since this individual is likely Caymanian and pensionable immediately”, as he would be under the standard employee-employer relationship.

But specifically in the case of your company, the official added, “Based on the question, it would appear that this company is relatively young, since it is only covering the overheads, and just getting established since the self-employed person is not claiming a salary.

“For clarity: if you are paying your personal expenses (utilities, credit cards, mortgage) from the company, then those amounts would be considered your earnings and pension contributions are due on them. If, however, the individual has not drawn any personal expenses or income from the company in order to cover the aforementioned personal expenses, then the individual has not received any earnings.”

And if there are no earnings, then you would not owe any pension contributions, but again, you still must establish a pension plan. In addition, you are required to notify the administrator of your pension plan in writing every month to confirm there have been no earnings.

The official then cautioned, “It is incumbent upon the self-employed person to ensure that a pension plan is established as such compliance is a component of the Trade and Business Licensing process.”

The laws mentioned in this column can be found on the CNS Library

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Category: Ask Auntie, Pension Questions

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