Coping with the auto-enrolment nightmare

Posted by Julian Bryan, managing director of Legal Futures Associate Quill

Bryan: Auto-enrolment applies to everyone

The clock is ticking for UK employers who haven’t yet gone live with auto-enrolment workplace pensions. The final staging dates are imminent and the Pensions Regulator is now routinely publishing details of employers who’ve been ordered to pay fines for ignoring new pension rules.

If you’re not compliant already, now’s the time to act. However, if you’re battling to get to grips with auto-enrolment – and it hasn’t been labelled “the biggest shake-up of pension reform for a generation” for nothing – there’s never been a better time to outsource the increasingly burdensome payroll function.

“You’re bound to say that,” we hear you shout. And, yes, as an outsourced service supplier, it’s in our interests to promote outsourcing at every opportunity. So we’ve compiled a list of five reasons why we’re not being entirely selfish. We’re actually doing our bit to help you cope with mandatory pension reform and avoid costly financial penalties or irreversible reputational damage.

1. Auto-enrolment applies to everyone

Even if you employ just one person, you’re still obliged to provide a workplace pension. In other words, there’s no avoiding it. It’s the law. Whether you’re a small, medium or large-sized business, you have a legal requirement to comply by your allocated staging date.

We strongly recommend checking your staging date as soon as practicably possible. It’s easy to do. First, hunt out your PAYE reference (it’s on all your company’s HMRC documents) and then go to the Pension Regulator’s website here.

2. Punishments are enforced

Just as with any breaches of the law, there are punishments for non-compliance. The Pensions Regulator is empowered to regulate and fine businesses that do not comply either deliberately or unintentionally.

Fines range from £400 fixed penalty notices right up to £50,000 civil penalties for companies failing to engage with auto-enrolment or pay contributions due.

And it’s not just the financial cost, although this is obviously deterrent enough. The negative publicity surrounding your unlawful activity may cause irreparable damage to your professional reputation.

As a legal service provider, this is extremely embarrassing. Even worse, you may lose clients as their trust in you wanes.

3. Managing work-based pensions is demanding and complicated

Even before your staging date arrives, there’s a lot to do. This includes assessing your workforce to see who’s eligible (against defined criteria), choosing a pension scheme (from an auto-enrolment-ready pension provider) and communicating with your staff regarding their options.

One of your earliest decisions relates to the individual pay components which determine your employees’ qualifying earnings, for example overtime, commission and bonuses. It’s up to you to make a reasonable judgement as to whether each element fits within the definition of qualifying earnings.

Even when you’ve reached your staging date, your responsibilities don’t end there. Employees must be re-assessed, contributions re-calculated, opt-ins added, opt-outs removed with refunds given, every payroll cycle.

And don’t forget general record-keeping and reporting which is part and parcel of maintaining a clear audit trail of transactions. It’s a mammoth task and one which needs tackled every few weeks ad infinitum.

The main reason cited by businesses postponing their staging date is an inability to cope with the excessive amount of prescribed paperwork. Despite being on the horizon for years, firms are continually caught unawares by the sheer volume of work involved preparing for auto-enrolment.

4. Selecting a pension provider is a difficult decision

Pension providers are much of a muchness, offering the same service for the same fee, right? Wrong. With no restrictions on charges, some providers are applying additional administration costs. Providers’ benefits, such as range of investment options and web-based software support, vary drastically too.

Your choice of pension provider will influence the costs to your business of auto-enrolment as well as determine the administrative processes involved. So, the small print matters and needs to be carefully checked, compared and questioned before you sign on the dotted line.

5. There are other payroll duties to manage too

To top it all, your payroll clerk (who may also be your business manager, accounts clerk, general administration assistant, receptionist or everything combined) has all their existing responsibilities to take care of. Your employees’ salaries, for instance. After all, unless they’re working on a voluntary basis, at the end of each month, your employees have to get paid.

On a standalone basis, payroll management can be a full-time job, covering salary processing, SMP, SPP and PAYE payments, payslip production, in-year and year-end reporting, as stipulated by ever-changing HMRC legislation.

A heavier workload resulting from the introduction of auto-enrolment pensions and, suddenly, the role assumes unmanageable proportions. The net result of overwork is often stress at work.

A Bacs-authorised bureau is permitted to perform your payroll function on your behalf, including transferring money from your business bank account directly into your employees’ bank accounts to pay their monthly salaries.

So that’s payroll and pensions. There are, of course, many other reasons to outsource complex, heavily regulated back office business functions.

But with the first figures on investment returns from the first workers entered into auto-enrolment pensions in the news in the last few days, it is a major issue that all law firms, big and small, need to address now.

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