Is your payroll ready for the auto enrolment hurdle?

Funnily enough, 2014 is the Chinese “Year of the Horse” and we’re told it promises unremitting rewards as the months gallop by!  

But! Did you know that over 29,000 employers will race towards their automatic enrolment staging dates this year? And, with current employee opt out rates as low as 9% this will create an upsurge in administration for businesses like never seen before.

Ongoing, relentless and never ending!

It’s a fact, that continually and unceasingly from their initial staging date, employers will have to enrol, process, monitor and record employees who move in or out of automatic enrolment eligibility and assist individuals as they choose to opt-out or self-opt in to an appropriate scheme.  It is this ongoing, relentless and never ending burden of pension administration that will undoubtedly fall at the door of the Human Resources and Payroll departments in every business.  So we are asking, have you already prepared who is doing what, where and when?

Are you prepared to jump?

It is likely some employers have yet given little thought to how their current systems will cope with the “jumping effect” caused by fluctuating earning levels and personal pension choice.  Perhaps then, it is fair to surmise that these organisations have also failed to consider a robust framework to assist auto enrolment communication and legal compliance boundaries across their organisation too?

Understandably, it is totally at an organisation’s discretion how they manage their auto enrolment process internally.  However, as an outsourcing payroll specialist we are continually asked to clarify what part of the process we will remove from our clients or to define the boundaries and limitations of our payroll service from the outset.

This simple answer is, because each of our clients is provided with a bespoke payroll service – there is no one size fits all approach.

For some of our larger clients we have assisted them through the auto enrolment process. We have provided key eligibility data and worked closely with their pension provider to ensure a smooth set up and created a process of payroll monitoring and clear lines of communication.  However, for other clients they are requesting that we oversee the administration function for the auto enrolment process and act as a point of contact for both employees and pension provider on an ongoing basis.  If you require help, complete our Work Based Pension Questionnaire .

However, regardless which pension provider is selected by an employer it is vitally important that their payroll provider/department is involved in their pension development and strategy plans from the outset.  Imperative because each department is required to understand what their role is in the process and who does what.

What are the boundaries and limitations for each of the functions?

Private Pension Provider

A quality pension provider will fully administer a portfolio of products for your organisation and employees.  Marketing of the scheme, set-up and enrolment of employees, ongoing communication and fund management will be their responsibility.  Utilising a private pension provider should remove a great deal of the administration and legislation headache from your HR staff.  You can remain confident that the scheme administrator will be experts in work based pensions and will be able to facilitate any pension changes that may affect your business in the future.

It is likely the payroll department will communicate directly with the pension provider and HR department, but this is at the discretion of the client.

National Employment Savings Trust (NEST)

NEST is a new, low cost pension scheme any employer will be able to use to meet their new pension duties that start from 2012. It has been designed specifically to meet the needs of low to-moderate earners and their employers. Even if employers choose to run their own pension schemes, they may wish to use NEST for a certain category, grade or group of workers. This may be seasonal workers, new joiners, contract staff or staff who take career breaks.

NEST is an employer-managed pension scheme.  The employer will be required to keep up to date with legislation and eligibility changes.  Also, each employer will be responsible for enrolling their staff and ongoing communication with their existing or former employees.

The Payroll and HR department will communicate closely together with the employer’s designated in house pension administrator.

Payroll Department/Payroll Provider

On the employer’s staging date, it is likely there will be a number of eligible jobholders to be enrolled at the same time. Payroll should be ready to make deductions and pay across to the scheme from this date. Employers who operate a weekly payroll should allow enough time to set this up because, if the eligible jobholder is making contributions, deductions must be made from the first week.

Assuming an employer’s in house payroll software is auto enrolment ready, the appropriate eligible employees and their contributions can be extracted in a suitable format each time their payroll is processed.  Because work based pensions are here to stay, preliminary figures, forecasting and bespoke reporting is likely to become increasingly more frequent in the future.

To use a personal pension scheme for automatic enrolment there will have to be direct payment arrangements in place. The due dates for the payment of contributions under these arrangements are set out in law. As with occupational schemes, the employer should build the relevant due dates into their payroll process.

Ongoing data collection and reporting will be crucial to avoid heavy fines.

Human Resources

An employer must ensure that they cleanse and update their worker records in preparation for their employer duties.

The employer will need up-to date earnings and age information to enable them to assess what duty they have in relation to each of their workers. They will have to provide correct worker details to their pension provider and payroll department to achieve active membership in the scheme for those that need to be enrolled, and also keep auditable records to demonstrate their ongoing compliance.

Terms and Conditions of Employment should reflect the organisation’s work-based pension provision.

For many businesses, pension management may integrate very easy.  Perhaps these employers already have many pension products in place and therefore it simply calls for expansion of an existing role.  But for smaller organisations, a new administration era is dawning which may be faced with in-trepidation and add extra stress already experienced by small business owners.

Perhaps for some employers, postponement of project planning and a regard for the communication required between pension provider, Human Resources and their Payroll department/provider has been under estimated.  

But, would you expect your horse to jump all the hurdles first time without practice?   Perhaps, some employers believe “Once you’ve jumped one fence – the others are all the same?”.  But we are suggesting, don’t assume the systems required will automatically fall into place come the day. Or, each department has already understood their responsibilities and set out their lines of communication!

We believe it is vital for all employers to start planning ahead to ensure that not only are any likely increased pension costs budgeted for but that the right pension options for employees and the future of the organisation are considered.

Should you require any assistance in this regard, or any other matter concerning your automatic enrolment procedures, Steve Cox, would be happy to speak with you further.

Tel 0117 9328145