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Auto-enrolment fines on the rise

10 January 2019 by Crystal HR & Payroll Ltd

Auto-enrolment fines on the rise 

During the last financial year there has been a steep rise in the number of businesses fined by the Pensions Regulator for pension auto-enrolment errors, according to a freedom of information request.

The value of fixed penalty notices rose from £4,972,400 in 2016/17 to £11,546,400 in 2017/18 and the value of escalating penalty notices rose from £7,633,100 to £30,457,350 for the same periods.

Auto-enrolment errors cost employers £42m in 2017-18, up from £12.6m from the previous year.

The rise is in no small part down to small employers with less than 50 employees coming under the auto-enrolment banner from 2017.

Under the Pensions Act 2008, every employer in the UK must put their qualifying employees into a pension scheme and, where appropriate, pay contributions.

From 6 April 2018, employers had to double their pension contributions from 1% to 2% of an employee’s salary and employees had to put in 3%, up from 1%.

There are about 1.1 million employers in the UK with fewer than 10 employees. Since April 2017 they have been required to auto-enrol staff earning £10,000 or more in a workplace pension scheme.

The complexity of auto-enrolment schemes means that smaller businesses without in-house HR functions were at risk of making errors when attempting to auto-enrol staff.

Poor record-keeping is also a factor for small employers who either do not have the time to spend on administration or lack the knowledge and skills to record the information required accurately to assess their employees for auto-enrolment.

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Jon Taylor, principal at EMW, said: “The sharp rise in the number of fines suggests that SMEs are having real problems keeping on top of complex auto-enrolment schemes.  While larger businesses will have the necessary infrastructure and expertise to correctly auto-enrol workers, the same does not always apply to smaller businesses.  Considering the huge number of businesses now being caught by fines perhaps the Pensions Regulator needs to consider moderating the scale of the fees especially for SMEs.”

Smaller firms also need to be aware of the auto-enrolment increases from April 2019.

 

The increase

The table below shows the minimum contributions payable and the date when they must increase:

Employer minimum contribution Staff contribution Total minimum contribution
New rate:

6 April 2019
onwards

3% 5% 8%
Current rate:

6 April 2018 to
5 April 2019

2% 3% 5%

The Pensions Regulator has stated consistently that the vast majority of employers successfully met their auto-enrolment duties and often play down the significance of the sharp rise in fines.  In a recent comment The Pensions Regulator stated, “the rise in the number of times we have used our powers is in line with the rise in the number of employers with automatic enrolment responsibilities. We have no evidence there is any widespread issue of employers keeping inaccurate records or paying incorrect contributions” further adding, “research carried out into employer awareness and understanding of automatic enrolment shows most employers are aware of their ongoing duties, which include record-keeping and maintaining contributions, and said they are confident they are complying successfully. Where an employer does not have expertise in this area, such as a dedicated payroll department, we encourage them to seek help from a professional adviser to ensure they meet their legal duties.

“Employers who become non-compliant will be issued with a compliance notice and in most cases this warning is enough to get them back on track.”

We disagree with The Pension Regulator based on the evidence of the freedom of information request, which seems to clearly show that smaller employers are struggling with the legislation.

It is therefore imperative that smaller employers or anyone who has duties under auto-enrolment legislation seeks help if they are at all unsure of what they need to do.

Help can be found from a number of providers, such as a payroll bureau, who provide outsourced payroll services, HR company, that may provide payroll as part of their services or an accountant to name a few.

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