Auto enrolment case study: Woods Squaredby
AccountingWEB caught up with director Alan Woods to find out how the firm managed the task and the challenges it presented.
Woods Squared’s first auto enrolment (AE) experience came with an existing client - a large nursery with staff spread over a number of different sites.
The firm had done the nursery’s payroll in the past and therefore expected an impact on their practice, even if the business decided to use somebody else to manage AE.
The client’s main difficulty was that around 120-130 employees were either youngsters or trainees who did not earn enough to qualify for AE contributions.
In many cases no deductions would be made, which nevertheless meant a lot of admin dealing with new starters and the ongoing assessment process.
Woods explained: “They were a growing business and looking to take on more sites and new employees, but the vast majority of those, probably two-thirds, were for one reason or another not having anything taken off them for auto enrolment.”
Woods Squared started talking to the nursery about AE in March 2013 - more than 12 months prior to the staging date on 1 May 2014.
Alan Woods said that early on the client felt comfortable with their payroll processes, but as the year progressed, around October 2013, they found they were speaking to a number of financial advisers to get a system and advice in place.
At this point they realised they would not be in the position to manage and administer the staging process on their own.
Woods explained: “At first we introduced them to a financial adviser to talk them through what auto enrolment was, what sort of solutions there were in terms of private pensions, NEST and various other alternatives that might have been available to them.
“But it was really at that point that they got even more confused, because the options given to them didn’t appear to be the best for them as a business, based on their workforce, and the resulting potential cost was excessive.
The following month Woods Squared got more actively involved in the AE process.
“We gave them a forecast of the cost on the business from staging date right the way through to the next change in contribution levels, so we could see exactly what impact it would have on them and their business.
“With that we built in a provision for the cost for us, and other advice that they may need, to integrate that into the business and the workforce,” Woods explained.
With 1 May looming, the nursery elected to postpone its staging date by three months to 1 August to come up with a solution that would better suit the business.
Woods said that one of the biggest tasks they faced was getting a supplier or product in place to run and monitor the AE process.
At this point middleware solutions were on his radar, who could remove manual tasks such as worker assessment and reporting that are involved with AE.
At the time the likes of Sage, IRIS and other payroll software products weren’t really available and “ready to go” for his early staging client, he said.
“They were certainly too late for this client. Sage only really made their software available around December last year, and IRIS were still working on theirs. Those and a few others were getting close to having a solution, but some of our clients had to stage a little bit earlier.
“So that was a difficultly that we had, just trying to get something that would work. Because we use Sage Payroll in the office to process their payroll, we were trying to get something that would work to process and manage their auto enrolment for them as well.”
The lack of appropriate software and the time it took the IFA to sort the information and come up with a solution added further pressure to timescales.
The IFA had suggested the option of a private pension provider, including Scottish Provident who they were speaking to. But they were asking for much higher contribution levels for AE-compliant solutions than the government-backed pension scheme NEST, and the likes of NOW: Pensions and others.
“So they actually ended up with NEST as their auto enrolment solution, mainly because of the contribution levels that were allowed into it, and the fact it was more flexible in that they could start with the lower contributions that are available and then review that over time.
“The private and personal pension alternatives were looking at anywhere from 7% combined contribution upwards, rather than the 2% combined contribution, which NEST, NOW: Pensions or The People's Pension allows,” Woods said.
He added that the firm helped the nursery on the communications side of AE for all the general notices and ongoing monitoring.
“We’re maintaining that for them at the moment. It makes sense from an accountant’s perspective to incorporate auto enrolment within that process. Otherwise if you’ve got more than one person involved it could get a bit confused with who is doing what or increases the time involved in waiting for one person to do one part of the process and then move on to the next part of the payroll.”
The greatest challenge Woods Squared faced was getting the right software and processing solution ready for staging.
In comparison the actual AE side of it was relatively straightforward, Woods said.
“We understood the legislation, we knew what needed to happen. At the time we wanted to have Sage and make sure it did what we wanted it to do, but the auto enrolment module wasn’t available,” he added.
“We were being told by Sage that the software would be ready and that it was coming out soon, but they kept putting it back, so we were having conversations with our client saying it will be ready but we don’t know what it will be or not be.”
The most difficult task was putting the client at ease and convincing them that it would be alright, that there would be a solution, even if the accountants didn’t know what it would look like.
Woods encountered another big issues after it started processing the AE contributions. Sage doesn’t allow you to change the pay period from a calendar basis to a tax month - for example from the end of the month to the 5th of the next month. While it isn’t a major problem going forward, Woods said it was a bit of a hassle in the first month.
Woods said the firm was calculating the AE costs on a per-employee basis, and as it’s a new service area, they were doing it “as best we can”.
This means offering discounts for those signing up for a longer-term contract with the firm, as well as those opting for software advice and training.
“It’s all a bit trial and error at the moment. A lot of the employees don’t make any contributions, so we’re working out how we cost that as well.” Woods said.
But he added that every employee, every month, needs to be assessed, which incurs costs even if they don’t need to make a contribution.
The firm’s next set of clients are staging for AE in six months’ time, so Woods is starting conversations with them now.
“Accountants need to be getting involved or they’ll go elsewhere. We need to be pro-active, offering, learning and providing a reliable service in this area,” Woods said.
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