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Making auto-enrolment work: The best use of postponements

Using auto-enrolment postponements properly can allow businesses to manage the costs involved, ensure the right employees are enrolled and simplify the process

Jones

Despite what some employers may possibly believe, postponement is not a mechanism for deferring your staging date.

It will however – apart from the ability to defer costs for a short while – enable employers to better manage a number of joining and other cost issues by deferring the date workers are assessed for up to three months.

Postponement is a tool an employer can apply on a selective basis as long as it is not applied on discriminatory grounds. Although employees have various rights in terms of opting in during postponement, delaying assessment can enable employers to:

  • Avoid enrolling employees who may have a temporary spike in earnings
  • Align assessment dates with pay reference periods
  • Stagger the enrolment of different categories of employees
  • Accommodate contractual joiners 

The earnings spike

A spike in earnings could trigger auto-enrolment where the employee’s usual wage pattern would not normally create an eligibility issue.

Postponement can be used in these circumstances to delay the assessment until after the pay has reverted to the usual level, provided, of course, this happens within the postponement period, otherwise the employee would be auto-enrolled and left to decide if they opt out or not.

The alignment with pay reference periods

Using postponement to pitch the assessment date so that it coincides with the start of the pay reference period can be a key factor, particularly when using tax periods. This is an option available to employers from November of last year.

This enables contribution calculations to be based on a full pay period. Would a payroll system have the capabilities to determine how much pay an employee has earned in a part period?

It is important here to ensure that the postponement notice to the employee clearly states the correct ‘deferral date’. Confusion over the employer’s actual, as opposed to perceived, pay reference period can cause all sorts system and communication problems. 

Phased joining

From a business planning perspective logistical and cost issues may need to be managed on a staggered basis. Postponement provides the opportunity to auto-enrol different groups on a phased basis.

Contractual joiners

Employee consent as part of the joining process, such as salary exchange, is clearly inconsistent with auto-enrolment. Form filling and changes to contracts of employment involving consultation does not fit easily with the slickness auto-enrolment demands.

Although addressing the consent issue well before an auto-enrolment date perhaps is a more relaxed way of implementing contractual changes, using the postponement coupled with a well thought out and structured communication programme can achieve similar results without giving the employee impression that a change has actually occurred.

A typical scenario might be to postpone the employee’s assessment for three months and in this time communicate all the pros and cons of salary exchange.

Consent can then be obtained via an opt in or opt out basis, and at the end of three months if consent is not obtained auto-enrolment is processed on a non exchange basis.

Contractual joining could, of course, be included in the employee’s contract of employment, a device used by some employers to avoid some of the paraphernalia auto-enrolment entails.

Postponement is a mechanism to be considered not only as a cost-deferral opportunity but as a space to build structural changes that have long-term benefits in ensuring auto-enrolment works in a way suited to the employer.

Glynn Jones is divisional director for group savings & investments at LEBC Group

Source: The Pensions Regulator

Potential uses for auto-enrolment postponement
To smooth the process of staging, eg automatically enrol groups of workers at different points in the three-month period
To align automatic enrolment with their existing payroll processes, eg to avoid calculation of contributions on part-period earnings, or to maximise the amount of the opt-out period that falls before payroll is run
To smooth the process of the automatic enrolment duty in respect of workers with rare spikes in earnings
To smooth the process of the automatic enrolment duty in respect of short-term workers who leave soon after starting work, or workers who trigger automatic enrolment just before ceasing employment
To facilitate contractual joining into a salary sacrifice arrangement
To smooth the process of fulfilling the information requirements, eg use the postponement notice to fulfil a number of the different information duties for a worker in one go.
Source: The Pensions Regulator

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