Kate Upcraft sheds light on this confusing transition period for auto enrolment, as new employers apparently overtake more established businesses on the compliance ladder.
Auto enrolment has now moved into stage two in respect of new employers who first pay an employee on or after 1 October 2017. This has the potential to create confusion, with some new clients having auto enrolment duties before existing clients who have been in business for some time.
For the last five years, we have got used to the concept of staging dates which were set based on either the number of employees in a PAYE scheme (as at the end of March 2012) or when a PAYE scheme was first set up. Although for new PAYE schemes that is not as straightforward as we thought.
There are now only a few staging dates left until 1 February 2018. The allocated date can be ascertained from this table on the Pensions Regulator (TPR) website.
However, some of these dates seem to be mysteriously moving and it seems the culprit may be RTI data. Tax agents are reporting that having initially checked their clients’ staging dates, TPR has started writing to clients with different dates to the ones originally shown when using this search facility on their website using the specific PAYE scheme reference.
We are still getting to the bottom of why the staging dates are moving but it seems to be associated with the difference between when a PAYE scheme is set up, which may not be the same date as when PAYE income is first paid to a relevant employee. TPR is working to the latter date of when employees are first paid.
There also appears to be a significant time delay between when PAYE schemes are being set up by HMRC and the data reaching TPR systems. Fortunately, we only have this problem for existing clients that started in business before 30 September 2017, as things are very different for new businesses set up from 1 October.
Duties start date
All employers who take on their first employee on or after 1 October 2017 will have an immediate ‘duties start date’ when they go into business. This means as soon as a worker is paid, auto enrolment is a consideration in the same way as tax and NI.
It is still possible to postpone auto enrolment duties for the first three months, or whenever there is a new starter or earnings spike, but that process is now called ‘deferral’.
The difficulty in managing future staging dates at the same time as new clients using deferral is that during the deferral period the worker can override the employer's decision and ask to be auto enrolled. Contrast that with future staging dates where the worker cannot demand membership of a pension until the staging date is reached, and then a three-month deferral could also be applied.
Workers not employees
The Pensions Act 2008 applies to ‘workers’, which is a broader group than employees. ‘Workers’ will incorporate other people in the business who are potentially invoicing the business on a self-employed basis.
There are no statistics available as to how many workers are in scope for auto enrolment, but anecdotally it seems that very few have been auto enrolled when arguably they should have been. It remains to be seen if this compliance failure will be on TPR’s radar in the months to come.
Whilst personal service workers are in scope for auto enrolment personal service companies are not, in respect of the deemed employment that some of them have if contracting in the public sector. As directors of their own companies, they have the option to opt into a workplace pension through their own business, not because of a deemed employment.
Many of the employers still left to stage for auto enrolment are based overseas but have perhaps one or two employees in the UK. This presents a somewhat intractable problem that the employer needs a UK bank account to be able to open a workplace pension, and without a permanent UK establishment (which they will be keen to avoid) they will struggle to obtain a UK bank account.
What is clear is that their accountant should not offer to operate auto enrolment contributions from the practice bank account which are funded by the client. Unless the agent is registered with the FCA as a Payment Services Provider (PSP), offering such a banking service would mean they fall foul of the Payment Services Regulations 2017 that came into force in July 2017.
Some of these overseas employers will also be operating direct payment of tax and/or NI schemes, and if so these PAYE scheme references won’t have passed to TPR from HMRC. In that case, the scheme can’t be looked up on the TPR website, so if the payroll is run by an agent they will need to ascertain the staging date for those schemes established prior to 30 September 2017 by looking at this table of generic staging dates.
It will be a shock to clients who are staging over the next few months to find out that the employer contributions will increase to 2% in April 2018 and 3% in April 2019, when they are only just getting used to paying for pension contributions.
The client should be wary of any communications to workers which focus on the significant hike in their contributions, as such communications could be seen as encouraging an employee to opt-out, and thus fall foul of the inducement provisions in the Pensions Act 2008 and Employment Rights Act 1996.
Employers who are setting up salary sacrifice arrangements to share the costs of pension provision with employees should be mindful that as the contributions and the NMW rates rise, care must be taken that increased sacrifice values do not take employees below the new NMW rates.
Kate is a technical writer, editor and lecturer on all aspects of employing people - primarily payroll and HR matters.