Guest Comment: Auto-enrolment - are you compliant?

Written by DLA Piper partner Claire Bell
02/03/17

The introduction of auto-enrolment, now over four years ago, signified one of the biggest changes to pension provision in the UK for decades. The complex and unfamiliar requirements mean that some employers have inevitably not complied with the legislation throughout the implementation process.

With The Pensions Regulator (TPR) willing to fine employers who do not comply with their auto-enrolment duties, employers must remedy these errors as soon as they become aware of them.

Auto-enrolment is now part of the fundamental duties of an employer and the process is strictly prescribed by legislation. Employers must categorise employees, determine which duties apply in respect of each employee and then take the appropriate action. As a workforce is constantly changing, employers must consistently categorise which employees fall within the statutory definitions to ensure that contributions are being correctly paid.

Common pitfalls and errors

We have seen a range of challenges emerging for employers from advising our clients about the auto-enrolment process, and have also come across a number of common pitfalls. A common theme is incorrectly calculating contributions based upon an incorrect application of the statutory definitions of 'eligible employees' and 'qualifying earnings'. Employers must ensure that the statutory tests are being applied correctly.

Another pitfall is a failure to postpone auto-enrolment correctly. Under the rules, employers are able to postpone their staging date by up to 3 months by issuing postponement notices. In order to comply with the requirements of postponement, a notice must be issued within six weeks of the postponement period starting. In some cases, postponement notices were not issued until after this period. In others, notices were issued that did not comply with the prescribed content requirements which deemed the notice to be invalid, or the postponement was in excess of 3 months.

Errors have also arisen in relation to the timing of payment of contributions. Other than in respect of the first deduction, contributions must be paid before the 19th day of the month following deduction, or the 22nd day of the month of an electronic transfer. There have been instances where contributions have not been collected and invested in accordance with the legislation by the provider.

Taking action

Once a breach of law has been identified, the employer should devise a solution to rectify the breaches. Employers must ensure that they take prompt and effective action to remedy any breaches. The key feature of any remedy is to ensure that members are put in the position that they would have been in, had the breaches not occurred, so far as is practicable. The position in respect of employees who have left the business will also need to be considered.

The requirements of auto-enrolment are statutory obligations and therefore any failure to comply constitutes a breach of the law. Even where the breaches are attributable to another party, such as the pension provider, the obligation lies with the employer. TPR has published a compliance and enforcement strategy, outlining its approach for detecting non-compliance and for dealing with employers who fail to comply with their obligations. The latest report shows that TPR is increasingly using its powers and imposing fines on employers where their auto-enrolment process has not met requirements, with 9,831 fixed penalty notices issued thus far. Employers must inform TPR of any material breaches and the employer's proposed solution to rectify the breaches.

Changes ahead

Changes to auto-enrolment legislation are on the horizon and employers must comply with any new requirements. The government is currently consulting on technical changes which will impact new employers in particular. Furthermore, the current minimum employer contribution of 1 per cent is set to rise to 2 per cent from 6 April 2018, and increase again to 3 per cent from 6 April 2019 onwards. It is vital for employers to be aware of the scheduled increases, prepare for these in advance, and ensure that the correct amount of contributions are paid.

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