How to reduce potential costs of auto-enrolment? Top 5 ways

/ Posted By - Bradleys Accountants / Categories - Advice for Small Businesses

Auto-enrolment is inching closer to your doorstep every day. Starting in October 2012, businesses have been asked to automatically enrol all eligible employees into a pension scheme with both employers and employees making pension contributions towards a pension pot unless an employee chooses to opt-out. This applies to all businesses though the start or ‘staging’ date varies according to the number of employees in a PAYE scheme (If you know your PAYE scheme reference, visit The Pensions Regulator’s interactive staging date tool to look up your staging date).

So what is the true cost of auto-enrolment?

Taxpayers with small tax bills can secure a cash flow advantage by filina The Centre for Economics and Business Research (CEBR) in its analysis of a report entitled “Finding your way out of the auto enrolment maze” estimates an average set-up cost of £8,900 for a small business, ie, those with 1 to 4 employees. While SMEs with up to 100 employees will have to spend an estimated £12,600, businesses with up to 250 staff will have to bear an estimated cost of £15,600, and those with up to 500 employees could spend as much as £22,300 to be in line with the new legislation. In addition to the warning about cost, the report went on to alert British businesses to brace up for arduous paperwork, bureaucracy as well as the necessity to complete an average of 33 administrative tasks to get in line with the new regulations. With regards to duration of time, the report said it will take some businesses up to 103 working days to implement! And that is not the end of it. Long after you’ve finished filling the first forms that got your auto-enrolment scheme in place, you will be required to spend considerable time each month to keep up with recurring administrative burden. However, don’t be alarmed. From a finance professional’s standpoint these numbers seem like estimates based on assumptions that businesses will use the same techniques to adapt to their new duties as they did while purchasing employee benefits in the past (for a more customised “true” cost for your business, either get professional help or visit The Pensions Regulator’s website as they have published a lot of guidance around auto-enrolment). Having said that, auto-enrolment will definitely bring additional costs whether they come from employer contributions, change in payroll systems, or the time, money and resources needed to communicate with staff and maintain appropriate employee records. g early. However, the option is only available to those in PAYE employment who earned additional income during the year on which they owe tax. If the tax owed is less than £3000 you can request HMRC to calculate whether the underpaid tax can be taken from your salary or pension in equal instalments. As per HMRC five thousand taxpayers qualified last year but failed to file in time.

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    Here are the top 5 ways to reduce the cost while adhering to legal requirements?

    1. Workforce analysis

    Along with helping you find out an employee’s eligibility, a proper analysis of your workforce will help you find out the possible levels of administrative time and employer pension contributions required. It will also enable you to plan ahead and decide whether you need a new payroll system or a specific pension scheme.

    2. Salary exchange (sacrifice) scheme

    Some costs of auto-enrolment like minimum contribution requirements can be mitigated by introducing a salary exchange scheme. It will create savings for businesses by reducing National Insurance (NI) payments. You can use a bulk salary exchange tool by Scottish Life to understand the entire process of salary sacrifice, right from calculating employer and employee NI savings to producing letters for workers to agree to salary sacrifice. Note As this requires some calculations, a subject matter expert is better placed to advise how you could benefit from such schemes.

    3. Pension scheme review

    Review your current pension scheme and find out if it meets qualifying criteria. If it doesn’t choose a new one carefully as charging structures vary from one pension scheme provider to the next. The arrival of new providers has further created opportunities for better deals but they impose strict criteria. The key here is to get started now as the schemes you can choose will be limited as time goes on.

    4. Payroll systems

    Invest in a payroll system that can automatically identify ‘eligibility’ trigger points such as a pay-rise or a 22nd birthday – these triggers can turn a non-eligible jobholder into an eligible jobholder. The savings will not be visible immediately, but in the long term a robust payroll system will save you time spent on manual calculations – especially true as employees will have to be opted back in every 3 years to then be opted out again if they request it.

    5. Opt-out system

    Lastly, businesses with high staff turnover and/or high numbers of short-term staff could ensure to have a payroll system that allows workers to join and leave the pension scheme efficiently.

    In less than 6 months a number of the 56,000 small and medium businesses in Kent, ie, those with 50 to 249 employees, will have to comply with workplace pension auto enrolment for their staff. And those who fail to do so will face a range of sanctions. Businesses who ignore the Pension’s regulator’s first request will have to pay a fixed penalty of £400. And those who persistently breach compliance notices will face harsher penalties: £50 a day for businesses with fewer than 5 workers, escalating to £500 a day for those with 5-49 staff, and a mammoth £10,000 a day for those with over 500 workers. Since auto-enrolment is not only an HR, payroll or pensions issue, we advise you to get a team together to deal with this. Where necessary, seek external support to supplement the support you have in-house. Want the latest business news and analysis? You can follow Braldeys on Twitter or join our Linkedin page.

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