Auto-enrolment is about to get personal

Tom Nall outlines the surprises in store for both clients and advisers as the auto-enrolment SME swell approaches

As we approach the early swell of SMEs staging for auto-enrolment, I want to highlight a few surprises in store for your clients, and perhaps even for you.

By June, well over a million employers will have received a letter from The Pensions Regulator asking that they nominate a contact and, ideally, a second point of contact too to get in touch with around staging dates – this could be you, their adviser or, in practice, may well be whoever runs the employer’s payroll.

The earliest surprise for clients may be when they stage; from now on, staging dates are mostly not ‘simply’ determined by the size the employer was back in 2012.

From June 2015 to May 2017, employers’ staging dates are broadly determined by the last two characters in their PAYE reference, and from May 2017, it’s the turn for tranches of businesses that started after April12.

This means that there are some real tiddlers out there staging before larger companies that have grown to a fair size since 2012 – so don’t assume that a company of just three employees will stage in 2017.

Late in the day

A dangerously late surprise in store for clients is that their accountant’s or payroll provider’s version of “yes, we handle auto-enrolment” most likely doesn’t include reviewing existing pensions or finding a new one, or clarity on what constitutes a worker, or answering any questions from employees and perhaps doesn’t even include the regulatory communications.

The gap is understandable: why would an accountant or payroll bureau want to determine the pension strategy for an employer, or risk stepping into the world of regulated advice?

For that reason, they are looking to partner with advisers to complete the auto-enrolment solution for clients, so I urge you to identify who runs the payroll for your key clients and make sure they know why that partner should be you.

Engage early, as plugging the gap late may well prove hugely challenging and your client could end up one of the many employers fined by The Pensions Regulator.

You can also help accountants and bureau ensure some consistency of auto-enrolment approach across their client base.

Outsource payroll companies are waking up to the fact that leaving clients to select pensions means that they have to connect payroll with any number of pension providers – a miasma of multiple file formats, additional data requirements and systems to learn.

For payroll, all this inefficiency will be enormously destructive to the value of their business, so help them pre-empt this and form a partnership that works to secure good client outcomes in an operationally practicable way.

Workers workers everywhere…

As smaller companies start to stage, the definitions of who is a worker, and for whom they work, can be quite challenging.

If you run your own business and, say, employ your spouse or partner, then you may well need to comply with auto-enrolment.

If you’re both directors and both take a salary from the company then that’s likely to constitute a non-written employment contract and make you liable for auto-enrolment duties.

If you’re both directors, but only one of you has an employment contract, then you don’t have duties. Finally, if one of you is a director, and the other not, then you’ll have auto-enrolment for anyone deemed to have a contract of employment. It’s clearly not a simple case of one size fits all.

Now, think about friends or family who require carers, nannies, personal assistants or other kinds of help. If the person taken on replied to an advert placed by the family, carries out their instructions and works for them alone, the ‘help’ will almost certainly be classed as a worker – and so automatic enrolment duties apply.

This will be the case whether the employers pay these individuals using the money provided by their local council in the form of direct payments, or a personal budget, or use their own money.

If, on the other hand, the person providing care or personal assistance is provided by an agency or the council, then this family is not an employer and automatic enrolment duties will not apply.

Probably a good test is whether they pay National Insurance relating to the carer or personal assistant – if they do, (or would do if the worker earned over £110 a week) they’re likely to be affected by auto-enrolment, even if they pass on the work to a payroll agency.

These last two potential surprises show just how local the impact of auto-enrolment will be, and how complex some of this will be to the uninitiated (and, in practice, all of us).

One step ahead

Knowing that some of these surprises may be lurking in wait for your clients, your friends, family and business may help you take action to avoid the added strain of compliance notices and ultimately fines from The Pensions Regulator.

Even if small businesses and those who employ assistants or carers are aware that they will be required to implement auto-enrolment, they’re unlikely to be prepared for how soon their staging date may be upon them.

I look at the technology solutions available for auto-enrolment – from payroll, middleware and pension providers among others – and it’s clear that they can help take the strain of the doing but not really the thinking of auto-enrolment.

Much has been done to narrow the options and make solutions more prescriptive, which will help enormously, but this is a market where there’s not just a manual for running payroll, auto-enrolment compliance and the pension, there’s also an instruction manual for whether you need it in the first place.

I believe that financial advisers can do a power of good to bring the personal touch to auto-enrolment, helping employers ask the right questions and avoid surprises.

Tom Nall is director of workplace solutions at SimplyBiz

Read: Six magic questions advisers should be asking on auto-enrolment