What HR Departments Need to Know About Auto Enrolment
For your average employee, auto enrolment is an excellent development: it represents a chance to save money for retirement and help secure their long-term future. For your average HR director, however, it represents another frustrating, time-consuming hassle in a profession that hardly needs a heavier administrative burden.
Both, for better or worse, are correct. If your company has UK-based workers between 22 and state pension age salaried at over £10,000 a year, you have until your staging date – which you can find out on The Pension Regulator’s site – to have every qualifying employee set up for auto enrolment. If you’re running an SME HR department (and the smaller the team, the more pronounced the difficulties will be) the pressure is very much on: if you don’t have a dedicated payroll team, much of the responsibility for compliance will likely fall on you.
When it comes to auto enrolment, the sooner you get started the better: for any HR team, but smaller ones in particular. With this in mind, here are a few things you’ll need to think about.
Consequences of Noncompliance
The first thing to understand about auto enrolment is that it is to be taken seriously. The penalties for noncompliance can be pretty severe, so you probably don’t want to be held responsible for them.
Fail to implement the right pension scheme and you could face an initial fine of £400. Obviously, you’ll want to avoid paying this if you can, but the real problems come later.
Should your company remain noncompliant after receiving the first notice, it may face penalties based on total members of staff at a prescribed daily rate.
If the business employs 1-4 people, this fee is set at £50; if it employs between 5-49 people, it amounts to £500 per day; if it employs between 50-249 workers, it could come to £2,500 per day. The impact of these fines on company accounts will vary on a case-by-case basis, but incurring unnecessary penalties is unlikely to earn the favour of your finance team – auto enrolment penalties are an outgoing that can be avoided.
The Trouble With Auto Enrolment
If you’re an HR director, you’ll likely realise the severity of the penalties listed above – but that doesn’t necessarily mean that you’ll know what to do about them. Where smaller businesses are concerned, the central problem with auto enrolment isn’t so much compliance as understanding how to comply in the first place.
Helpfully, The Pensions Regulator has compiled a document outlining each requirement in exacting detail; unhelpfully, this document is over 670 pages long. Simply reading it will take days of ploughing through dense legalese with no guarantee of comprehension at the end. Understanding their criteria and implementing a complying pension scheme won’t be easy.
Firstly, HR directors aren’t known to have an abundance of free time. Other priorities will occupy your workdays, and many of these will be just as critical to the business’ continued operation. Anybody who wants to spend all day thinking about pension registration when they don’t have to is probably some kind of masochist[***].
Secondly, your company’s situation is not precisely alike to any other’s. Each employee will have put pen to a different contract; their ages and salaries will vary; some will leave during the process, while others will be hired. Each member of staff will need to be assessed before they can join the scheme, which will – inevitably – take some time.
Even if you can successfully manage all of this, most large pension companies are not equipped to work with smaller businesses.
What can HR Directors Do?
Not every HR team will have the internal resources needed to understand how to implement auto enrolment on their own. If this is the case, it’s prudent to look elsewhere.
If you have a finance team, it may be worth leveraging their help if possible; more than any other department, it has a distinct interest in making sure the company does not pay any unnecessary outgoings. Noncompliance fines are always, always unnecessary.
If they’re still unwilling – or if you simply don’t have a dedicated finance team – then it may be worth soliciting third-party advice from an integrated accounting firm. Certain consultancies may even plan and execute the whole auto enrolment strategy: this usually entails assessments, payroll-related administrative tasks, and ensuring that everything is properly aligned with the pension provider’s requirements. When you’re not confident that you can organise a suitable scheme on your own, it’s better not to take unnecessary risks; whatever you spend enrolling members of stuff will likely be dwarfed by the possible penalties.
For all the hassle, however, it bears remembering that many ultimately positive developments had awkward origins. Auto enrolment will be worth it in the end, for HR directors and the people they manage. It’s a system designed to provide a better retirement for almost everyone in work, but I admit, you’ll only have a clearer view of the benefits once you’ve gotten it out of the way.
The process of implementation comes with frustrations, but look on the bright side: it will never need to be done on this scale again.