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Auto-enrolment; Assess the Workforce, not the Payroll!

Over recent months, payroll technology providers have really upped their game to provide additional functionality to help employers meet their auto-enrolment duties. Indeed, many payroll providers are promoting themselves as the “one stop” solution for auto-enrolment (AE).

Their argument is that employers don’t need to use the services of financial or corporate advisers as payroll services can meet all of their compliance needs.

With a confusing array of auto-enrolment solutions out there, many of the 38,000 employers facing their staging date in 2014 would welcome a simple solution. But can payroll do the job alone? The answer is not necessarily.

Although payroll can conceivably provide much of the service and information required for employers to meet their AE duties, basic compliance isn’t likely to be the best outcome for most firms, particularly for those intent on getting the maximum return on their investment.

Payroll providers won’t be able to provide tailored recommendations such as selecting the most appropriate pension scheme or preparing and delivering the right communication strategies to meet the specific needs of individual employers.

There might also be logistical issues in relying solely on payroll providers. For example, employers need to be mindful that their data will generally only include employees, whereas employer duties relate to ‘workers’ who may, or may not be employees.

With over 3.4 million UK workers now self-employed, many employers will have experience of using contractors within their business. The critical issue is that the ‘worker’ test for auto-enrolment is not the same as IR35 tax status for self employment. The Pensions Regulator guidance is that the default position for Personal Service Workers (sometimes known as a contract of services) is that these are workers and should be auto-enrolled. The problem is that they probably won’t be on the payroll.

Although payroll systems will be a useful tool in helping employers meet their AE duties, they shouldn’t be used in isolation. When preparing for AE, employers need to take a wider view and if there is any doubt whether a contractor or non-employee may be a ‘worker’ for AE purposes, specific professional advice may be required.