Auto Enrolment & The Pensions Regulator's AE tool kit
There are still thousands and thousands of small and micro employers due to embark on their auto enrolment journey. The Pensions Regulator continues to warn employers about non-compliance and the consequences associated there with. Employers will also need to be aware that they will still have to pay outstanding pension contributions in respect of their eligible employees.
A massive portion of these employers are using HMRC Basic PAYE Tools (BPT) to process their payroll. This tool can be limited and cumbersome at the best of times and does not cater for auto enrolment. For these users, the option of manually processing the AE duties is definitely something to be avoided. A major disadvantage of manual data entry is lack of accuracy and increased errors. It will also take time to manage and keep the data updated. With 332 penalties issued at the end of June '15, it puts additional pressure on employers to get it right.
So what is The Pensions Regulator (TPR) doing to help these users?
TPR has been looking at ways to help these users with their auto enrolment duties. While TPR says that it is not necessary to use payroll software for auto enrolment, they confirm, it will make life a hell of a lot easier if you do. It goes without saying that every employer wants the AE process to be as uncomplicated and straightforward as possible, especially with non-compliance penalties hanging over their heads. TPR does advocate payroll software that has auto enrolment functionality to make life easier.
The Pensions Regulator's AE tool
TPR will release an auto enrolment toolkit to assist HMRC users with the challenges of auto enrolment. They have also confirmed that the features and functionality will be manual and limited. If this AE tool is basic, it will surely add to the stress and frustration of auto enrolment for many employers?? TPR agrees that without adequate software, employers will struggle to assess their employees and calculate contributions. It was also confirmed that the HMRC Basic PAYE Tools will not include any auto enrolment capabilities.
TPR continues to inform employers that there are free or inexpensive solutions on the market to help with AE. It would be even better if these solutions had free support to further assist employers with the AE setup and payroll processing. It has been reported that these HMRC Basic PAYE Tools users are concerned about using free software as they might be up-sold other products. Another key factor is that people don't like change! These users fear that changing systems might be difficult. A beneficial feature would be the possibility of easily importing employee details from the basic PAYE tools into payroll software.
AE Toolkit - Features & Functionality
AE Set up - The tool uses a tax-based pay reference period only. The tool will be based on a set up criteria that is the same for all employees and it will not support multiple pay frequencies, tax arrangements or variable contribution levels.
Assessment - The tool allows employers to download an excel spreadsheet where the data will be stored by the user. It will not be an online tool and TPR will not have access to this data. In the spreadsheet the user will need to populate the figures each pay period in order for assessments and calculations to take place. It will then need to be inputted back into their Basic PAYE Tools.
Entitled workers - If an entitled worker chooses to join the employer's pension scheme, the tool will support this but only if it is processed on the same basis as the other employees i.e. the employer must also contribute.
Contributions - The employee assessment is based on calculations of the employees banded qualifying earnings only. If an employer has a different contribution arrangement the tool will not work for them. The tool will have functions to make sure that contributions that are lower than the minimum contribution rates cannot be processed.
Custom Contributions - The tool will allow variations of the contribution rate if an employer decides to pay more than the minimum level. However, if a user wishes to process multiple contribution rates for different employee groups, they will have to set up multiple versions of the tool for each different variation rate.
Number of Employees - The tool will support up to 15 employees. Where an employer has more than 15 employees, the user will need to create multiple versions of the tool to accommodate these extra employees. This is more than enough as HMRC Basic PAYE Tools will only accommodate up to 9 employees.
Postponement - The tool will not have specific postponement functionality. If a HMRC Basic PAYE Tools user wishes to postpone an employee or employees, they need to stop using the tool until the end of the postponement period. Once the period has ended, they can then use the tool to assess the employee's work status again.
Re-enrolment - While re-enrolment is a long way off for small and micro employers it is something to think about. The tool will not have the ability to help users with re-enrolment.
Communications - The tool will not produce the mandatory communication for employees about auto enrolment. Free templates are available but the letters will still have to be manually processed by the HMRC user/employer.
Outputs - The tool will indicate who needs to be enrolled into an AE pension scheme and provide the contribution figure. Once the assessment and contributions data is inputted back into Basic PAYE Tools, the user will need to log into the pension scheme’s web portal and manually input the figures. Producing output files that are compatible with the various pension providers would reduce the risk of errors and non-compliance.
Payslips - It will be important to have visibility of the pension contributions and cumulatives on payslips for employees. The HMRC Basic PAYE Tools does not produce payslips.
TPR is working towards launching the tool by November of 2015. A list of free and low cost payroll and auto enrolment software is available here which will make life easier for HMRC Basic PAYE Tools users. Auto enrolment can be complicated enough. Does this new tool sound long winded, time consuming and awkward?? What do you think?
Written by Karen Bennett for BrightPay. BrightPay has published a guide - '10 Pitfalls When Choosing Software for Auto Enrolment' to help employers and accountants to choose the best payroll and auto enrolment solution for them.
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