HR · 27 January 2016

Auto-enrolment burden on small employers could be significant

auto-enrolment burden
Small employers have expressed concerns that the policy puts micro firms under too much pressure

A new report by the Public Accounts Committee has cautioned that smaller employers may struggle with a significant auto-enrolment burden because of requirements due to come into force this year – and warned this means “the real test is still to come” in the roll-out of the policy.

The authors argued: “Smaller employers have fewer resources to administer automatic enrolment and simplifying the process will be critical to the success of the programme.”

Being brought into force in stages, auto-enrolment means that employers will have to sign up workers over 22 – and earning over £10,000 per year – to a pension scheme by default, although employees will be able to opt out if they wish.

The remaining firms with fewer 30 employees that have not yet faced the auto-enrolment deadline have been assigned staging dates between 1 February 2016 and 1 April 2017 – depending on the last 2 characters in their PAYE reference numbers. Employers who do not have PAYE scheme will also have to set up and auto-enrolment scheme by April 2017.

New companies where PAYE was first paid after April 2012 will have later staging dates – with the final deadline 1 February 2018.

Since the policy was introduced for large firms in September 2015, the proportion of workers choosing to withdraw from such schemes has been less than 15 per cent. But small employers have expressed concerns that the policy puts micro firms under too much pressure.

A survey carried out by the Federation of Small Businesses (FSB) over the last two months of 2015 revealed that some 45 per cent of the business owners who had not yet complied with their auto-enrolment responsibilities were unsure what they needed to do to follow the law.

Mike Cherry, policy director at the FSB said: “The Public Accounts Committee is right to highlight the challenge auto-enrolment poses for smaller businesses. These firms do not have HR departments or in-house pensions experts and many will struggle to get to grips with the legislation. Our latest research shows that while smaller firms generally believe auto-enrolment will be good for their staff, many are still unclear what they need to do in order to comply.

“As the Public Accounts Committee suggests, the real test of auto-enrolment begins now with hundreds of thousands of small businesses set to start enrolling their staff into a pension scheme over the next two years. FSB is calling on Government to monitor the roll out of auto-enrolment closely and take steps to lessen the burden on smaller businesses where possible. Meanwhile, small employers must face the fact that auto-enrolment is coming and the quicker they get to grips with it, the better off they will be.”

The average cost of putting into place a workplace pension was £1,436 for businesses that have already implemented the policy, the same report found – with some companies reporting costs of over £2,000.

If your micro firm is yet to begin auto-enrolment, read this guide to the process from the CEO of Now:Pensions, Morten Nilsson.

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Hannah Wilkinson is a reporter for Business Advice. She studied economics and management at Oxford University and prior to joining Business Advice wrote for Kensington and Chelsea Today about business and economics – as well as running a tutoring company.

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