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Micro-firm’s auto-enrolment nightmare

Micro-firm’s auto-enrolment nightmare

The flood gates are about to open. Less than 50,000 employers had auto-enrolled by the start of this year and a similar number will do so by the end of 2015, as more medium and smaller employers come on stream. However, it is in 2016 when the big push will come, with over 100,000 due to auto-enrol in the first quarter alone. This is because we are arriving at the staging dates for employers with less than 50 employees, which kicks in at the start of this year and then rapidly increases, so that the tax year 2016/17 should see the auto-enrolment of over 600,000 schemes.

This is a huge surge forward in terms of the numbers of employers involved in auto-enrolled pensions. The massive increase is coming from the sector who are most reluctant to engage in the area because of the administrative burden and possible legal consequences of what they are about to do.

They are also among the employers with the most complex ‘qualification’ calculations to do. A lot of SME’s, and in particular micro-employers, employ part-time and casual labour, as they have neither the consistency of business demand nor the company cash reserves to smooth out their staffing profile. As a result, their current calculations around pay and taxation are inordinately complex and often in micro-employers, done manually.

Micro-firms, i.e. those with fewer than 10 employees, are too small to have the dedicated HR professionals that were available to the larger firms when they were staging, and therefore the workload will fall on to senior manager or the owners. These are people who should be focused on growing their businesses, but instead they will now have to grapple with the complexity of which staff should be auto-enrolled and how much should be taken from them. So, how can we minimise the work involved for these employers, to allow them to stay focused on their real job instead of having to spend all their time wrapped up in staffing issues?

The only answer is the extensive use of technology. This means encouraging these employers to avail of payroll systems that will sort out the difficult questions of who should be enrolled to the calculation of the actual amounts to be deducted from each employee. The employer needs to be presented with the type of automated systems that will allow him or her to input the necessary details for payroll, and which will then automatically give him or her the instructions as to what needs to done for each employee in terms of auto-enrolment.

This will lift the burden of compliance from the employer, and will ensure no exposure to the type of mistakes that could be happen from haphazard manual calculation. Those who don’t currently use payroll systems need to be encouraged to do so as the manual work involved in getting both payroll and auto-enrolment correct is getting too big for micro-firms to handle. Leaving it all to their accountant may not be a good enough approach, given the complexity of the rules for auto-enrolling and re-enrolling opt-out members. As for the cost of payroll systems or bureau, the business case for that may well stand up much better now that the cost of auto-enrolment has to be factored in.

Tom Murray

Twitter: @TomMurrayDublin or @Exaxe

Google Plus: TomMurray

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