The clock is ticking for UK employers who haven’t yet gone live with auto enrolment workplace pensions. We’ve almost reached the second quarter of 2015 and 2017’s the final enrolment deadline.
With nearly 200 fixed penalty notices reported to have been issued by pensions watchdog, The Pensions Regulator, in the last quarter of 2014, well over 1,000 warnings given out in the same period and 1.2 million employers due to stage over the next 2 years, now’s the time to act.
However, if you’re battling to get to grips with auto enrolment (and we wouldn’t be surprised; 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, we agree with you. As an outsourced service supplier, it’s in our best interests to promote outsourcing at every opportunity.
But, we anticipate some scepticism which is why we’ve helpfully compiled a compelling list of five good reasons in our attempt to convince you that we’re not being entirely selfish. We’re actually doing our bit to help you cope with mandatory pensions reform and avoid costly financial penalties or irreversible reputational damage.
So, without further delay, let the five reasons begin”¦
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 enterprise-sized business, you have a legal requirement to comply by your allocated staging date which may be sooner than you think.
We strongly recommend checking your staging date as soon as practicably possible. It’s easy to do. First, hunt out your PAYE reference. This is conveniently located on all your company’s HMRC documents. It takes a 3-digit, 7-character format, for example, 913 / WZ5121A. Armed with your unique identifier, go to the online staging date tool, enter your PAYE code and click the ”˜Show my staging date’ icon.
2. Punishments are enforced
Just as with any breaches of the law, there are punishments for non-compliance. The Pensions Regulator is empowered by the UK Government to regulate and fine businesses who don’t comply, whether deliberately or unintentionally. Financial penalties 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 becomes questionable and, as a result, they begin to conduct their legal affairs elsewhere with one of your (delighted!) competitors.
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.
All this lengthy preparation is stressful enough without a last-minute rush by businesses who’ve left it until the eleventh hour to prepare. Much more so, if you have! As a general rule of thumb, it’s advisable to allow between 6 and 9 months for these preparatory stages.
And, 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 each payroll cycle. Not forgetting general record keeping and reporting which is part-and-parcel of maintaining a clear audit trail of transactions. Phew! 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 (and you can only do so for 3 months) 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 his / her 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. This isn’t pleasant for your struggling employee, who may require long-term sickness leave for recovery purposes, or for you dealing with the fallout, sharing your absent staff member’s duties between present employees or recruiting temporary stand-ins.
As a Bacs-authorised bureau (more on this later), we’re 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, thus significantly lightening the load on you.
These five reasons are specifically related to payroll and pensions. There are, of course, many other reasons to outsource complex, heavily regulated back office business functions. For example, lower operational costs, enhanced risk management, compliance assurance, availability of value-added support, automatic emergency planning, built-in disaster recovery, scalability, healthier cash flow and business development assistance”¦ to name a few.
To wind up, then, hopefully by now you’ve gained a better understanding of what’s demanded by auto enrolment. You may also have come to the conclusion that you simply don’t have the capacity to cope in house with your already-stretched human resources. In which case, our Payroll outsourcing service is an increasingly appealing option. We urge you to get in touch with us to discuss your payroll and pension requirements.