Advisers have welcomed Government efforts to simplify automatic enrolment regulations for small businesses although concerns remain about the cost and complexity of complying with the rules.
This week, the Department for Work and Pensions proposed a series of changes to auto-enrolment regulations designed to make the reforms less burdensome for small and medium-sized firms.
Firstly, the DWP says it wants to make it easier for employers to use existing payroll processes to check whether a worker is eligible for auto-enrolment.
It has proposed adding a new way of determining a “pay reference period” – the period of time an employer uses to check whether an employee is eligible for auto-enrolment – to make it simpler for firms to use their existing payroll systems to assess workers’ earnings.
Syndaxi Chartered Financial Planners managing director Robert Reid says: “It is good the DWP is trying to simplify payroll processes but this by no means solves the problem.
“A lot of small firms still have very basic payroll systems and this will not do anything for them.
“There could also be an issue when two companies with different payroll systems merge. When this happens there will inevitably be a period of transition and mistakes will be made.”
The DWP is also looking to simplify the rules for companies that have not reached their auto-enrolment staging date but already automatically enrol their workers into a pension scheme which meets minimum standards set by Government.
At the moment if an employee chooses to opt out of such a scheme the employer would be required to re-enrol them when their auto-enrolment staging date arrives.
The DWP has proposed introducing an exclusion from auto-enrolment in respect of workers who have voluntarily left one of these schemes within 12 months of the employer’s staging date. Under this proposal the employer would still be required to re-enrol the employee after three years.
In addition, policymakers are considering extending the “joining window” – the period of time after an employer’s staging date during which they must ensure all eligible workers are enrolled and issued with enrolment information – from one month to six weeks.
AWD Chase de Vere head of communications Patrick Connolly says: “It is positive the Government wants to make auto-enrolment less onerous for small employers. It would be farcical to force an employer which already starts auto-enrolment before their staging date to re-enrol employees who had opted out a couple of months earlier.
“Increasing the joining window will also give small businesses a little more breathing space and should reduce the risk of non-compliance and fines.”
The Government is also considering excluding workers with enhanced or fixed protection from auto-enrolment altogether. If these people were auto-enrolled and made a pension contribution they would lose their protection and could be hit with a tax charge from HMRC.
Hargreaves Lansdown pension investment manager Laith Khalaf says: “This would be a sensible carve out which would avoid the pitfall of people facing a huge tax bill as a result of being automatically enrolled by their employer.
“I think broadly it is good that the DWP is making auto-enrolment easier but it is still very complicated and employers will still need advice and help with communications.”
Pensions minister Steve Webb says: “These proposals are to make sure that parts of the legislation work better and are more user-friendly. We are also asking for suggestions on how we could recognise the best employers.
“Employers and our partners in the pensions and payroll industry have made a major contribution in delivering these landmark reforms. We want to build on this as medium-sized employers prepare to automatically enrol their staff into a workplace pension.”