It’s been a tough time for small businesses. Over the last 12 months, millions of employers across the UK have had to go through the process of introducing pension schemes to the large majority of their workforce, after the Government introduced new legislation on automatic enrolment in 2012.
As many small businesses are painfully aware, since the summer of 2015, small businesses with less than 50 employees have probably reached their staging date and been legally obliged to enrol their employees on a pension scheme.
In the majority of cases, small and micro businesses have met their obligation, however, the TPR have revealed that the number of penalties being issued is on the rise, especially among smaller businesses.
Experts suggest that it’s partly due to the lack of financial resources and the limitation of dedicated staff to take care of payroll and auto-enrolment. They are having to bite the bullet and use companies like Target Accountants to assist with the process.
Not an issue is business is doing well, but for those businesses struggling to make payroll, it’s felt more acutely. Very recently, in their Compliance and Enforcement Bulletin, the TPR reported that is had issued the following:
3057 compliance notices
806 fixed penalty notices
96 escalating penalty notices
In this article, we’re going to walk you through the process of notices and fines you’re going to incur if you don’t meet your staging date you’re going to be in a position where you’ll start receiving notices.
When we’re looking at statutory notices we include compliance notices, third party compliance notices and unpaid contributions notices. Additionally, we can include improvement notices, third party warning notices, and third party notices for individuals.
These notices constitute written notices that warn the business owner of action required to avoid a penalty or the next level of penalties. Now we’re going to take a look a the financial penalties you are likely to incur if you don’t take action on statutory notices.
Fixed Penalty notices (Known as FPN)
Right off the bat, you need to be aware that failure to comply with a statutory notice leads to an FPN. This is often issued immediately if their is evidence that the company has been in breach of some of the duties and obligations. The FPN stands at £400.
Escalating Penalty notice (known as EPN)
As, no doubt you know or have figured out, an EPN is issued when a FPN has not been acted on. The notice will give notice of a future date from which an additional fine, accrued daily, will be implemented.
This daily rate is a calculation made that takes into account the number of personnel in the company’s PAYE scheme. On other words, the more staff you have the higher the daily fine will be.
Number of employees Daily rate
1 – 4 £50
5 – 49 £500
500 or more £10,000
Third party non-compliance
When we’re looking at third parties we are discussing the role of financial advisors, who may also be issued with statutory notices and consequently, if they don’t take action on those notices the TPR will issue Escalating Penalty notices with fines set at £200 a day.
In most areas of business administration, negligence or failure to process National Insurance or Income Tax can results in an employer being issued a penalty. Automatic Enrolment is not different. Failing to apply
Just as incorrectly processing or neglecting to process income tax and National Insurance (NI) contributions leads to an employer being penalised, failing to apply Automatic Enrolment and general pension processes correctly will also be targeted. Additional areas you can expect to receive financial penalties include:
• Failure to make employer contributions to the pension company – fine up to £50,000
• Failure to pay over worker’s contributions to the pension company – fine up to £50,000
• Prohibitive recruitment conduct – minimum fine £1,000 increasing to £5,000.
If a company falls into the category of repeatedly failing to comply with legislation regarding Auto Enrollment, the next step in the process is to start legal proceedings. This can be civil or legal depending upon how a company has avoided compliance. In such cases the cost to the business can be much more, and not just financial.
Don’t wait to get it sorted.
If your auto-enrollment is a mess, you shouldn’t wait to get on top of it. The initial fines are manageable but they escalate quickly and severely. A small business owner with 5 employees might expect to be fined £500 a day. If you feel like you don’t have the time or expertise to get your auto-enrolment in place then contact us, our team are affordable and ready to help.
We’ve worked with small business across Staffordshire, over the last 18 months preparing them to meet their staging dates and to help them set up cost-effective processes to manage their auto-enrolment.
In some cases, we have come in, helped out clients get set up and then delivered training to enable the client to use their exisitng resources to manage pension contributions on a month to month basis.
With other clients, we have taken over full responsibility for the process. We’ve helped with the setup, meeting all obligations and deadlines, and we take over the month to month administration of pensions so that our client is able to have the peace of mind they are not going to start receiving notices or fines from the TPR.
Finally, for those smaller business owners who would like to manage full control of their business, we are able to deliver advice and training on the setup and be on hand to offer support whilst you manage your own administrative process.