February 20, 2017

Automatic Enrolment: Government consults on rules for new employers

As the end of the initial implementation period for automatic enrolment nears, the Government has started consultation on rules for new employers who would be first subject to automatic enrolment from 1 October 2017.

During the initial implementation period for automatic enrolment, the size of an employer's workforce as at 1 April 2012, determines its "staging date" when automatic enrolment duties would start to apply.   Employers who started employing workers after 1 April 2012 have a fixed staging date according to when they first started paying PAYE income: if it is between 1 October 2016 and 30 June 2017 the staging date is 1 January 2018, if between 1 July 2017 and 30 September 2017, then the staging date is 1 February 2018. These employers may opt to postpone for up to three months the automatic enrolment of new workers taken on after the relevant staging date.

However, new employers from 1 October 2017 fall outside the initial implementation period so would be subject to automatic enrolment as soon they begin paying PAYE income.  There is no ability to postpone automatic enrolment.  The thinking behind this was that automatic enrolment was simply an aspect of doing business as much as NI Contributions and PAYE and so should apply immediately.  

However, the experience of automatic enrolment has shown that this could cause problems.  The Pensions Regulator, using the data available from HMRC, may not be able to identify with certainty when an employer would be subject to automatic enrolment. This is important for the Regulator's statutory role of maximising compliance with automatic enrolment since it could be difficult for the Regulator to take enforcement action if it cannot say precisely when the employer starts to be subject to enrolment.  In addition, commercial payroll systems are set up to apply for a staging date at the beginning of the month (which is the case at present under the regulations) but this will not necessarily be the case for employers who become subject to automatic enrolment when they first pay PAYE income.

The Government is therefore proposing two changes to apply to new employers from 1 October 2017:

  • Automatic enrolment will apply from when the first worker starts employment with the employer (rather than the date the employer starts paying PAYE income).
  • Employers will be able to take advantage of the three month postponement of automatic enrolment. Currently this only applies during the initial implementation period.

The consultation is due to continue until 3 March, with the intention that amending regulations will come into force in April 2017. The consultation document is available here.

Clyde & Co comment

These changes are to be welcomed.  The extension of postponement to new employers from 1 October 2017 makes a lot of sense as this is often used to avoid automatically enrolling workers on short-term contacts who would otherwise only receive a small amount of contributions before leaving employment.

There may be further changes to automatic enrolment later this year as the Government is carrying out a review of automatic enrolment.  The focus of this is on:

  • Strengthening people’s engagement with workplace pensions, so that they have stronger sense of long-term personal ownership
  • The existing coverage of automatic enrolment and the balance between enabling as many people as possible to save whilst ensuring that it makes economic sense for them to be included
  • Strengthening the evidence base around the appropriate level of contributions into workplace pensions.

The report from this review is due to be laid before Parliament later this year.