Member Article

Pension auto-enrolment, is your firm ready?

The clock is ticking for SMEs to ensure they are compliant with pension auto-enrolment regulations.

While most small business owners understand which of their employees automatically qualify for the scheme, close monitoring of the workforce is essential to detect any changes in eligibility and identify employees who need to be automatically enrolled.

The onus is on the employer and not the employee to make sure eligible workers are enrolled. However, businesses need to be aware that in some cases staff can actively opt-in to a scheme even if they don’t meet the initial auto-enrolment criteria.

Although the first auto-enrolment deadline for SMEs with fewer than 30 employees was on the 1st June, some organisations may not need to comply until as late as April 2017. The staging dates for compliance are staggered depending upon the last two digits of the organisation’s PAYE reference.

For businesses yet to introduce auto-enrolment, preparation is key. Forecasts should be made to establish what financial impact compulsory pension contributions are likely to have on the organisation. It should be assumed that all eligible employees will join the scheme, this means that budgets and forecasts will be prepared to ensure that the firm is not ‘caught short’ by low opt-out rates.

Employees over the age of 22 who earn more than £10,000 a year must be enrolled automatically into a business’ pension plan. However, members of the workforce not meeting these criteria can choose to opt in to the scheme, in which case the company will be obliged to provide financial input.

Any staff member aged 16-74 with a yearly salary between £5,772 and £10,000 can choose to enrol. Even modest take-up from workers in this group would require a significantly-increased financial investment from the business itself in the form of additional pension contributions.

This issue is especially important for SMEs in the region with a high staff turnover or a large number of part-time or temporary staff who will likely fall into the ‘opt-in bracket’. Business owners must ensure that they fully understand what percentage of staff could choose to join the scheme and that they have plans in place to make the necessary contributions should this happen.

Once organisations have introduced auto-enrolment, the next challenge is to keep on top of the associated increase in administration. As well as having a paper trail in place, companies should closely monitor employees to discover whether any thresholds have been crossed and whether their eligibility has changed.

SMEs in the Midlands must be ready to react when a staff member’s circumstances have changed. For example, if an employee reaches the age of twenty two, or their earnings pass £10,000 per annum this would require the employee to be automatically enrolled in the business’ pension scheme.

If correctly implemented, pension auto-enrolment can be mutually beneficial for employees and employers. Staff enrolled into the scheme will experience a feeling of greater financial security and this could lead to higher staff-retention rates, as employees feel that the organisation is investing in their future. The key to compliance lies within accurate forecasting, monitoring, and knowledge about when staff become eligible or may choose to opt in to the scheme. Taking this approach will ensure the business is fully prepared and able to contribute when required.

Simon Atkins is a partner at accountancy firm Clement Keys

This was posted in Bdaily's Members' News section by Clement Keys .