The deadline for UK small businesses to sign up to auto-enrolment for their pensions is fast approaching. Here's what you need to do now.
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The auto enrolment of all UK employees in pension schemes was made law in 2008 and came into effect in 2012, and for small businesses who employ less than 30 people the final staging date is fast approaching.
UK businesses have until 2018 to automatically enrol all workers between 22 and State Pension age who earn more than £10,000 a year and work in the UK. Given what this entails, two years is not a long time.
While it may at first glance seem to appear costly and stress-inducing, auto enrolment is ultimately a good thing as it ensures all workers – irrespective of where they are on the income scale – have the opportunity to save for later in life.
For SMEs, however, the mammoth task of setting up their business for auto enrolment and the costs associated with this – £11,300 in man-hours for a typical firm of one to four employees – may appear to outweigh the benefits.
Why is auto enrolment difficult for SMEs?
Auto enrolment is a challenge for most business owners (even those with large businesses), but if you run an SME, complying with the legislation might seem like an impossible task.
This is completely understandable. Auto enrolment is not a quick process – it can take up to eight months to get your business ready. But time is not the only consideration, achieving compliance is also complex and you may not be sure of what is expected of you.
Unfortunately, auto-enrolment is not without its red tape
Government has prepared a detailed document explaining the requirements. However, given that it runs in excess of 670 pages, you will probably not have time to read it in entirety, let alone ensure you understand each section.
Further, each of your employees has a different set of circumstances. They’ll have signed different types of contracts, be paid different salaries and will more than likely vary in age too. This means each person will have to be individually assessed before they can be put into a pension fund scheme – which will be a resource intensive process.
Add to that the consequences for non-compliance and it’s easy to see why auto enrolment is a headache for SMEs. If you fail to implement auto enrolment you’re looking at an initial penalty of £400.
If your company then fails to make the changes within four months of receiving this penalty, it will be charged a daily fine of between £50 and £10,000 (depending on the number of staff employed) for six months.
Taking into account that non-compliance might not be intentional – but rather a consequence of not understanding the requirements – it becomes a significant problem.
It is clear that SMEs will have to implement a qualifying workplace pension scheme. So what are the options for small businesses in terms of auto enrolment?
Auto enrolment for SMEs
If you are wondering whether you can manage the process you should consider the following three questions:
Can you spare the time to read and understand the guidance documents?
Do your staff have the time available to spend on the project and planning that will be required?
And are you confident you can deliver a workplace pension scheme that will be compliant?
If you cannot answer a confident ‘yes’ to these three questions – or feel like your time can be better spent running your business – you might want to look into outsourcing your enrolment to a third-party integrated accounting provider.
Doing it yourself could lead to a few late nights
It is worth mentioning that large pension schemes and accounting firms are often not equipped to serve SMEs, as for many of them the market is still relatively uncharted territory. But this does not mean that there are no options available for SMEs.
A third party financial service provider can help your business become auto enrolment compliant by planning the entire project on your behalf, conducting your employee assessments, aligning your company payroll system with that of the pension provider and ultimately setting up the scheme.
Some service providers will even do data testing and compliance reviews and provide training as to how to run the system as well.
While auto enrolment is complex, the law wasn’t put in place to antagonise SMEs. Rather, it is aimed at benefitting everyone and SMEs should work to put the correct processes in place to support a system that in the long run will support them too.