For those of you who employ more than one person, you probably know all about auto enrolment. If you don’t (and you really should) here is a reminder; auto enrolment is a government scheme which requires an employer to place all qualifying staff into a workplace pension scheme. The employer should also make contributions towards the employee’s pensions.
It began being phased in from 2012 and, by now, all UK employers must comply. It is important to remember that the responsibility of being compliant rests with the employer. But what happens if an employer fails in their responsibility? We take a look.
What auto enrolment duties must employers undertake?
Auto enrolment responsibilities are a legal requirement and therefore must be undertaken by every employer. They include the following tasks:
- Set up and register a pension scheme suitable for automatic enrolment
- Automatically enrol eligible job holders into that pension scheme
- Arrange membership of a pension scheme for certain workers
- Make contribution for eligible jobholders and certain other workers
- Manage the automatic enrolment, joining and opt out processes
- Provide specific information to workers, pension scheme providers and The Pensions Regulator (TPR)
- Keep records of how they have fulfilled and continue to fulfil their duties.
The consequences of not complying with auto enrolment
If an employer does not fulfil their responsibilities, The Pension Regulator (TPR) will take action. They will issue advice, guidance and a warning in the first instance, followed by a statutory notice and then penalty notices should the employer continue their non-compliance. In a worst-case scenario, employers could be faced with court action and prosecution.
TPR’s approach is first and foremost to educate and enable employers to comply. They understand that most employers want to do right by their staff and non-compliance could simply be caused by lack of knowledge and understanding. Therefore, TPR communicate with all employers to make them aware of their duties and work with those who need help in becoming compliant.
It’s only when employers continue to ignore their responsibilities or deliberately breach notices that TPR will begin to enforce penalties.
If an employer complies late, which means enrolling workers after their staging date, they will be expected to pay back any missed contributions. Employees should be put back into the position they would have been should enrolment have been done on time.
At this point an employer should also give staff the option to payback their own pension contributions, but they do not have to do so.
The steps of enforcement
There are three main enforcement options that TPR will pursue: informal action, statutory notices and penalty notices, each one reflecting the severity of the non-compliance. We will take a closer look at these options below.
TPR corresponds with non-complying employers to offer guidance and warnings by phone, email, letter or in person. The employer may be issued with a warning letter giving a timescale in which they should become compliant.
Statutory notices are formal letters which tell the employer they must comply with their duties. The notices can also instruct payment to be made for any contributions which have been missed or were paid late. At this point, interest can also be estimated and charged for the missed contributions.
If the payments aren’t made within three months of the notice, employers can also be required to pay outstanding staff contributions.
If the statutory notice is ignored, or an employer is deliberately not complying, a fixed penalty of £400 will be issued.
An escalating penalty notice can also be issued to employers who fail to take action from a statutory notice. They come with a daily penalty rate of between £50 and £10,000 depending on the number of employees.
If an employer fails to pay any owed contributions, they could be issued with a civil penalty notice. These come with a heavy penalty of £5,000 for individuals and up to £50,000 for organisations.
Finally, employers who fail to fulfil a compliance notice, or if there is evidence that they have breached it could face a prohibited recruitment conduct penalty notice. This penalty is charged at a rate ranging between £1,000 to £5,000.
Paying or failing to pay penalty notices
Any penalty notice received can be paid online. Failure to do so could result in court action and prosecution. TPR has the right to restrain assets during a criminal investigation and can confiscate goods where there is a criminal conviction.
The right to a review
If employers believe that they have been unfairly issued with any of the above penalties or notices, they can apply for a review within 28 days. An application with supporting evidence should be submitted to TPR either online, by post, over the phone or in person. More information about the review process can be found on the TPR website.
Get advice from a professional
As you can tell, it’s just not worth ignoring your duties as an employer. If you are still unsure about your auto enrolment responsibilities, its best to speak to a professional. Either get in touch with TPR or speak to service provider.
Here at Face To Face Finance we are well versed in the auto enrolment requirements for employers. We can help take the headache out of setting up and managing any auto enrolment schemes. Please do get in touch if you think we could help you or take a look at our auto enrolment page for more information.