Avoiding pensions auto-enrolment is costly for SMEs

The Pensions Regulator is cracking down on companies that don’t meet their pensions auto-enrolment responsibilities.

922_MW_P34_SB

Paperwork may seem a chore but it's vital to keep up to date with auto-enrolment

A Derby-based recruitment agency has earned the dubious distinction of becoming the first company with members of staff given custodial sentences for breaking auto-enrolment pension laws. Last month, four senior employees of Workchain were given suspended prison sentences for illegally plotting to opt staff out of the company pension scheme, while the company itself was fined more than £280,000.

The case underlines the determination of the Pensions Regulator, which led the prosecution, to crack down on businesses not complying with auto-enrolment, which requires all employers to offer a staff pension scheme and to pay into it on behalf of employees apart from those who have specifically opted out. In addition to targeting those wilfully breaking the law, the watchdog is now taking a much tougher approach to firms that make a mess of auto-enrolment.

Get to grips with your duties

The vast majority of such cases concern small and medium-sized enterprises (SMEs) that have not fully grasped their duties under auto-enrolment, including many firms that have given responsibility for complying with the law to individuals and advisers not qualified to do the job.

Each quarter, the Pensions Regulator publishes details of the regulatory interventions it has made in such cases, including fines for non-compliance and in many cases court orders for unpaid fines. Such penalty notices now cover hundreds of SMEs that have fallen foul of the rules typically unwittingly and racked up penalties sometimes running into tens of thousands of pounds as a result. At a national level, the regulator levied total fines of £42m in the 2017-2018 financial year, when the auto-enrolment regime expanded to include hundreds of thousands of smaller businesses. That's more than three times the total for the previous 12-month period. One common problem for SMEs is poor record-keeping. While firms may be using specialist payroll software to calculate what pension payments to make on behalf of staff (or paying an accountant for the service), getting it right depends on detailed and accurate information about employees' personal circumstances and earnings.

Another issue is that having put their auto-enrolment arrangements in place last year, many SMEs think they can now sit back. But the regulator has exacting requirements covering employers' ongoing responsibilities, demanding regular updates and data submissions, as well as communication with members and pay reference period reviews.

Catch problems early

These problems are compounded by the fact that auto-enrolment errors may go undetected for an extended period, with no audit of employers' compliance taking place on a statutory basis. Instead, the regulator makes spot checks on employers such compliance visits may uncover longstanding issues that are expensive to put right, and which lead to larger penalties from the watchdog.

SME owners concerned about their compliance with auto-enrolment may want to seek independent advice on their arrangements before they receive a visit from the Pensions Regulator. One analysis of 10,000 schemes over the year to July 2018 found errors in half of the cases, according to auto-enrolment data platform pensionsync.

Recommended

Brexit: a bumpy beginning for small businesses exporting to the EU
Small business

Brexit: a bumpy beginning for small businesses exporting to the EU

Small businesses trading with the EU have struggled since the Uk officially left the EU at the turn of the year. David Prosser outlines the key proble…
12 Feb 2021
More help for small businesses to deal with customers who pay late
Small business

More help for small businesses to deal with customers who pay late

The latest measures to tackle the problem of customer who don't settle their bills on time bode well for small businesses.
3 Feb 2021
How to make sure your business doesn't lose out in lockdown
Small business

How to make sure your business doesn't lose out in lockdown

Money is still available via government schemes to help small companies cope with the latest Covid restrictions. David Prosser outlines what you can g…
16 Jan 2021
Three women CEOs who prove that diversity is the key to success
Entrepreneurs

Three women CEOs who prove that diversity is the key to success

Tom Saunders looks at how three very different women – Shahrzad Rafati, Trinny Woodall and Anne Boden –  have grown successful businesses.
28 Dec 2020

Most Popular

The days when you could get 7% from your bank are long gone – so what do you do?
Bitcoin

The days when you could get 7% from your bank are long gone – so what do you do?

With interest rates at rock bottom for so long, we’ve been forced to move from saving to speculating to earn any sort of return. Dominic Frisby asks w…
24 Feb 2021
Why you should still put money into a cash Isa
Cash ISAs

Why you should still put money into a cash Isa

Interest rates may be lousy, but tax-free saving into a cash Isa is still a good idea.
23 Feb 2021
Are we heading for another bond market tantrum?
Government bonds

Are we heading for another bond market tantrum?

The last time the US central bank tried tightening the purse strings, the bond markets threw a tantrum. With yields now rising, could we be about to s…
25 Feb 2021