AE non-compliance expected to increase as SMEs stage

The regulator this week encouraged small and medium-sized employers to check when they were required to auto-enrol after awareness and understanding research indicated 47 per cent did not know when they needed to act.

Information released this month by the regulator under the Freedom of Information Act indicated there were 134 breaches of auto-enrolment duties between October 1 2012 and January 31 2014.

This resulted in 129 instances of informal action being taken including instructions via telephone, email, in person and warning letters. The regulator has also taken formal action which includes issuing four compliance notices and one unpaid contribution notice, but no fines have been issued.

Charles Counsell, executive director of auto-enrolment at the regulator, said the watchdog has focused on creating a “pro-compliance culture” where employers have the information they need to auto-enrol staff.

“We are also working with employers to rectify anything that has gone wrong,” he said. “We have only needed to use our statutory powers six times, but we are not complacent and realise that the greatest challenge remains ahead with small and micro employers.”

Challenge of SME compliance 

Many expect the instances of non-compliance with auto-enrolment to rise with the smaller employers reaching their staging dates.

“The biggest challenge is that we have a lot of new employers coming up. It’s been notable that even the big companies have come unstuck in knowing what they need to do,” said Steve Herbert, head of benefits strategy at Jelf Employee Benefits.

Herbert said the complexity of auto-enrolment may be a stumbling block for employers, especially smaller ones with fewer resources.

“The detailed guidance notes are something like 230 pages; it’s a lot of information to take in and they’ll struggle,” said Herbert.

The complexity of implementing the reform can lead to companies focusing disproportionately on their staging date and not to what comes after.

“All companies focus on the staging date... I always tell people to think about what the process should look like and work back towards the staging date from that,” said Mark Pemberthy, executive director at JLT Employee Benefits.

The majority of schemes who are not complying are most likely to have committed the breach accidentally, said consultants.

“I have not seen any who are [flouting] the rules, it’s more been in terms of people underestimating the size of the task,” said Timothy Phillips, head of employer duties at Capita Employee Benefits.

Pemberthy said that the financial health of the employer is one of several issues that could play a role in compliance.

“The regulator called out issues around non-payment of contributions. That’s not an AE issue, it may be down to [the]economic issues of employers,” said Pemberthy.

“I would expect some of it to be down to not leaving enough time, not having strong enough control of processes and not enough focus on business-as-usual processes,” he said.

Additional reporting by Maxine Kelly