HR · 10 February 2016

Employer woes as auto-enrolment costs add pressure on business

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To limit auto-enrolment costs, 10 per cent of employers stopped wage growth

Employers are feeling the pinch in cost terms of auto-enrolment according to new research, with 70 per cent noting that changes to the workplace pension rules have resulted in additional financial pressure on business.

The increased costs of auto-enrolment have impacted small firms in different ways. The most common reaction, experienced by 21 per cent of businesses, was to absorb the costs – taking lower profits.

In order to limit the costs of automatically enrolling staff, 15 per cent of employers paid in only the statutory minimum contributions. Overall, ten per cent reduced or stopped wage growth and ten per cent reduced other elements of pay.

However, figures from the latest Employee Outlook survey from professional HR organisation the Chartered Institute of Personnel and Development (CIPD) found that the overall numbers of workers paying into a workplace pension scheme had increased. The survey of 2,000 employees found that 66 per cent saved via a workplace pension scheme in 2015, up from 45 per cent recorded in 2010. In total, 74 per cent of those earning less than £10,000 paid into a workplace pension scheme.

Commenting on the findings, CIPD performance and reward advisor, Charles Cotton, said: “Employers are clearly taking a hit and this is likely to become more of a problem with the introduction of the national Living Wage in April, and as the Apprenticeship Levy in 2017 edges ever closer.”

“What is particularly worrying are possible changes to how pension contributions will be taxed,” added Cotton. “Taxing pension contributions or introducing a single rate of tax relief would result in a significant administration and cost headache for many employers. If changes have to be made, then they should come in after 2018 as auto-enrolment will be complete and businesses will have had time to measure and respond to the impact of these other new initiatives.”

Improving productivity would be one way of increasing pension contributions without cutting back on other parts of the payroll according to Cotton. The survey showed that of the 32 per cent of UK employers that increased salaries by more than two per cent in 2015, 28 per cent managed to do so by making improvements in productivity.

However, the data also revealed that just eight per cent of small businesses have so far taken steps to review working practices and re-design jobs to make staff more productive.

“All employers need to review the way their organisations operate and identify the areas where improvements can be made,” Cotton went on to say. “If employers can make enough small changes then they can really boost productivity.”

The latest Pensions Regulator Quarterly Compliance and Enforcement figures, released last month, indicate that with simpler payment set ups and fewer staff, small businesses might be better equipped for auto-enrolment than larger firms.

Of the first group of small and micro businesses to reach an auto-enrolment staging date in June last year, 90 per cent were entirely compliant.

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ABOUT THE EXPERT

Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.

Business development