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Auto enrolment – what’s the worst that could happen?

With staging dates now well and truly upon SMEs over the coming year, and micro employers thereafter, the Pension Regulator’s report published yesterday serves as a stark reminder to employers of all sizes that non-compliance with auto enrolment legislation is serious stuff.

The Regulator reported that a large organisation with 4,500 staff failed to enrol members on time, underpaid the required level of contributions, and didn’t register its compliance with the employer duties in time. The result was two statutory notices being served on the employer to address these issues, in the interests of pension scheme members.

Because the employer complied with the notices and engaged openly with the Regulator to resolve the issues, no penalty notices were issued.

But it could’ve been worse…

Let’s remind ourselves of what the penalties could be for an employer where there is ‘persistent and deliberate’ non-compliance with auto enrolment:

  • Fixed penalty notice (£400 fixed) – failure to comply with a statutory notice, or if there’s sufficient evidence of a breach of the law
  • Escalating penalty notice (£50 – £10,000 per day, depending on no. of staff) – failure to comply with a statutory notice
  • Civil penalty (up to £5,000 for individuals, up to £50,000 for organisations) – failure to pay contributions due
  • Prohibited recruitment conduct penalty notice (fixed fines between £1,000 per day for organisations with 1-4 staff, to £5,000 per day for 250+ staff) – where employers fail to comply with a compliance notice and deliberately undertake prohibited recruitment conduct, in effect trying to avoid all of their duties.

In addition the Regulator can take civil action through the courts to recover penalties and prosecute for ‘persistent and deliberate’ non-compliance.

Are the risks the same for smaller businesses?

Yes. In fact, the worrying aspect of the example given above is that it relates to a large employer, where one would expect there to be scalable resource to appropriately manage the preparation and implementation of auto enrolment. Yet they still managed to get things wrong and fell foul of the regulations.

For SMEs, and micro employers in particular, the risks of non-compliance are no less, whilst the likelihood is arguably greater. Resource will be a challenge for many, with business owners and staff focused on managing the business, and support services typically outsourced. For many it is unlikely that there will be someone appropriate in-house that will have the time or knowledge to put in place a compliant auto-enrolment solution. Whilst professional advice will play an essential part for many in delivering a compliant solution, the employer still has to engage with an adviser with sufficient time to ensure that it can meet its various duties within the prescribed deadlines.

Preparation’s what you need

The Regulator has powers to enforce auto-enrolment, and it’s not afraid to use them if it needs to. Preparation is the key for any business ahead of auto enrolment, regardless of size.

Granted, it’s all relative – a smaller business may not need to prepare as far in advance, its needs may be more straightforward and everything will be on a smaller scale. But the penalties if they get it wrong, albeit adjusted for the size of the workforce, could still be hefty in relative terms.

One final thought – last August the Regulator confirmed it was investigating 89 different incidents of potential non-compliance. So, this isn’t the first we’ve heard of investigations into non-compliance, and it certainly won’t be the last.