Part I – how much additional time does AE really take?
Last summer, pensionsync commissioned a well-received – and highly quoted – survey on the impact of Automatic Enrolment on the payroll industry: Automatic Enrolment: The Payroll Perspective conducted by the inestimable Dr Iain Clacher of the University of Leeds. Pension providers, advisers and commentators have spent a lot of time (rightly) talking about member outcomes and charges, but have often over-looked, dismissed or ignored the fact that the additional burden of administration falls on payroll professionals. Furthermore, there is a complete lack of appreciation of the lack of margins with the payroll industry and that, for a significant number of accountants, payroll may well be offered to clients as a loss leader in an attempt to sell their other services.
Automatic Enrolment: The Payroll Perspective demonstrated the impact on payroll of AE and so we thought that 6 months on – and with the SME market beginning to Stage – that we would undertake a shorter update to Dr Clacher’s survey. For our follow up survey we received 20 replies, which represented about half the number of the previous one, but again bureaus and accountancy practices formed the overwhelming amount of responses.
Additional AE Payroll Timings
Our results show that on average managing CSV files to provide data to pension providers took 32 minutes per client every single payroll; with approximately 18% of respondents averaging over an hour every payroll.
On top of this the average amount of time to manage data errors was an additional 23 minutes (with over 40% of respondents taking more than 30 minutes per client per payroll cycle). And finally, an additional 12 minutes to manage opt outs and other worker instructions. So in total, AE is taking payroll professionals an average of an extra 67 minutes per payroll per client. These figures should be viewed positively: Dr Clacher’s survey had longer processing times of 4 hours plus per client per payroll. But it can be argued that this improvement is partly due to increased experience of the operatives and the reduction in the average employer size as Staging Dates have moved on.
But the bad news is that none of the respondents have remotely staged the majority of their clients. The spread of bureau size was diverse (100-2,000) so each has their own range of problems. But, let’s make the arbitrary – and rash – assumption that each client has a single monthly payroll (it’s a ludicrous assumption, but it works for now). A bureau with 200 employers to Stage therefore has to find an additional 223 hours per month or an additional 1.5 people. A bureau with 1,500 needs more than 11! Change that so that 1/3rd of the clients has a weekly payroll and the numbers shift to 3 and 25.3 additional headcount respectively.
And have payroll costs increased commensurately?
In short “no”.
We have seen accountants who have seen their payroll processing double but who have only introduced their explicit AE costs by 7 pence per payslip! In general though, payroll timings for AE appear to have doubled but prices have only increased by 25-30%. This compares with New Zealand where, following the introduction of the KiwiSaver, payroll prices increased by 40-50%. So, there is obviously a lot of cost absorption taking place in the UK – and it is not as if the payroll industry has wide margins.
How to mitigate the timings issue
A number of payroll software products and pension providers now support the transmission of AE data through data automation (APIs). This means that data can be transferred to and from the pension scheme at the click of a button. Of the pension providers, Nest has the widest coverage of payroll software that supports it, however there are now a strong number of mainstream payroll products that can – or will very shortly be able to – automatically send/receive data to Legal & General, The People’s Pension, Smart Pension, Aviva and NOW: Pensions. So efficient AE processing through data automation does not need to preclude provider choice for employers and certainly should not impact on being able to provide quality member outcomes (which is after all why we are going to this trouble. Even then, many accountants will think of AE as being the last straw for their payroll services. But even here there are other solutions which allow accountants to retain existing clients and even attract new ones. There are a number of exceptionally efficient payroll bureaus out there that are set up for large scale processing and which have the facilities to white label their products. In certain scenarios, these can be excellent ways of providing your clients with payroll services but without the overheads of having to maintain your own software and staff.
In Part II of this short series, I will be looking at scheme selection and how to avoid it while adding value to your SME clients.