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The penalties for non-compliance with auto-enrolment

As a new piece of policy, aimed at boosting the pension pots of British workers and ensuring that we do not develop a dependency culture from lack of personal savings, auto-enrolment is now in full swing. But what happens to businesses which do not comply with its framework?
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Don’t miss our comprehensive auto-enrolment digital guide – featuring the stories of four SMEs

We’ve made auto-enrolment so much of a focus that a specific mini online hub has been created – populated by content that will help you, as a business owner, through the process of becoming compliant.

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The centre piece of this is our new digital guide, packed full of fellow business owners discussing their own unique approach to auto-enrolment. From Martha Lane Fox’s Lucky voice through husband and wife operation Independence Pay, each have shared stories with Real Business.

One thing that is of upmost importance, however, is the penalties SMEs could face for non-compliance. And that’s where we begin our journey here.

The Pensions Regulator which, amongst its other duties, oversees the compliance side of auto-enrolment, stresses it recognises that “most employers will want to do the right thing for their staff” and futures.

“Our overall approach is to educate and enable you to comply with the legislation,” it has said. “This puts you in a position to make the right choices and decisions. However, the responsibility for complying will rest with you, the employer.”

If an employer fails to comply with duties relating to auto-enrolment, The Pensions Regulator may take enforcement action and issue a notice and/or a penalty.

According to the organisation, in cases where an employer is found to have failed to understand duties under the law or been unable to comply, it will “work with you to get you compliant”. However, if this is after the declaration of compliance date then the business may still get fined.

In addition, for those that have wilfully chosen to ignore the need to comply then action will be taken.

Enforcement policies begin with informal action, which involves the issuing of guidance and instruction by telephone, email, letter and in person. It then uses statutory notices which can direct a business to comply with duties and/or pay any contributions it has missed or is late in paying. The Pensions Regulator can also estimate and charge interest on unpaid contributions and direct an employer to calculate and pay unpaid contributions. However, again, if a failure to comply is identified after the declaration of compliance date then the process moves straight to a Compliance Notice reiterating what the employer needs to do.

Penalty notices are another option in punishing “persistent and deliberate non-compliance”. A fixed penalty notice may be issued if an employer does not comply with statutory notices or if there’s sufficient evidence of a breach of the law. This is fixed at £400 and payable within a specific period.

An escalating penalty notice may then be issued, for failure to comply with a statutory notice. This has a daily rate of between £50 and £10,000, depending on the number of staff an employer has.

Where there is evidence of a breach of the safeguard to prevent an employer advertising or offering a job with the condition that a recruit opts out of the pension scheme, The Pensions Regulator can issue a Compliance Notice and, ultimately, a prohibited recruitment conduct penalty notice. This penalty has a prescribed rate of £1,000 to £5,000 depending on the number of staff the employer has.

As a last resort, civil action through the courts can be taken to recover penalties. Companies which wilfully fail to comply with duties may be prosecuted. “We aim to fully recover all the penalties that we issue,” the Regulator has said. “We can also confiscate goods where there is a criminal conviction and restrain assets during criminal investigations with the assistance of other specified agencies,” it has warned.

Employers can appeal these enforcement notices, but this must be made within 28 days of the notice being issued.

It is important to note that these aren’t just tough words – action has and is being taken against errant employers.

Indeed, according to the latest official auto-enrolment compliance and enforcement, there had been 11,099 compliance notices – relating to an employer’s contravention of one or more auto-enrolment duties – by March 2016. There have been 3,045 fixed penalty notices and 165 escalating penalty notices over the same period.

With smaller employers now meeting and planning for staging dates, The Pensions Regulator has revealed the number of notices has increased.

The latest compliance and enforcement report stated: “Our research shows that most employers want to do the right thing by their staff but that smaller employers are more likely to leave things to the last minute. They therefore need a ‘nudge’ to encourage them to meet their duties, so as expected we have seen an increase in the number of compliance notices. A minority still don’t comply after receiving such a notice, but many do after receiving a fixed penalty of £400.

“As we deal with smaller employers, it is expected there will be more who, despite the message to prepare early, leave it too late or don’t act at all. We take this very seriously, as it’s not fair if employees don’t receive the pension contributions from their employers that they’re legally due.”

However, Steve Herbert, head of benefits strategy at Jelf Employee Benefits, believes that the message is now beginning to be heard and understood by SMEs. “The work the Department for Work & Pensions did with the “Workie” adverts has resonated well with employers and employees alike, and the level of awareness of auto-enrolment duties is now better than it was.

“It is, however, important to note that the policing of auto-enrolment is much more overt than it was with stakeholder pension requirements, so I would encourage all employers to ensure that they understand the legislation and meet the new requirements both at staging date and on an ongoing basis.”

If, as the owner/manager of an SME, you’d like further guidance on auto-enrolment then visit The Pensions Regulator website, where you’ll also be able to discover your personal situation through its Duties Checker system.

Don’t miss our comprehensive auto-enrolment digital guide – featuring the stories of four SMEs

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