News & Articles

Small Businesses and Auto-enrolment

July 17, 2018

Over the past few months and since the introduction of the latest contributions increases, there have been many headlines about the auto enrolment structure and potential fines involved.

But there has been far less coverage on the reality of it all. Today we want to focus on exactly what is going on behind the scenes.

More specifically, we’re going to look at how the legislation has affected small and micro businesses. Ever since the introduction of the Government-led auto enrolment initiative back in 2012, there has been a tangible apprehension amongst smaller company employers of the potential impact of such legislation.

Myth vs. Reality

With the bottom line and admin costs often so much more palpable within smaller workforces, there has also been concern about how to effectively communicate the changes with employees whilst fulfilling compliance and the duties of good governance. But, just like so many other things, the anticipation of the impact was far worse than the reality.

Research from the Department for Work and Pensions found that small businesses are finding auto-enrolment “less costly and time-consuming” than they imagined.

In addition, they found that employers are taking a confident, positive attitude towards auto enrolment and successfully communicating with their team on all essential aspects of the scheme, including the role of employer and employee. They have also kept them up to date with any upcoming developments such as the contributions increases.

According to an article in the Pensions Expert, the research also showed that employers chose a range of ways to communicate about auto-enrolment with their employees. This is where a smaller size workforce works in the employer’s favour, as face-to-face meetings, or even one-on-one time, is far more manageable in every aspect.

The Impact of Contributions Increases

Of course, the legislation has inevitably presented small businesses with some new and unfamiliar challenges. Since the increased contributions were introduced in April of this year, where minimum employer contributions doubled from 1% to 2% of staff pay, a number of smaller set-ups are feeling the strain.

While this is not a huge contribution per employee, costs add up fast in line with business and team growth. City AM reports that there have been calls for the government to help smaller-sized companies – mainly start-ups and those with 10 employees or less – to offset the effects.

These are also the companies who will be most affected by the reduced dividend allowance (from £5000 to £2000) introduced at the start of this tax year, creating a double whammy effect and the need for a solid advice network.

It seems that very small and micro employers are being hit hardest in many ways and this is a serious issue, as the UK is one of the most micro-business dense countries in the world.  With many of these workforces having no pension scheme in place at all prior to auto enrolment, these changes are even more encouraging as they prove just how valuable auto enrolment has been in helping to raise awareness around the importance of preparing for retirement in a structured way.

An Element of Uncertainty

However, this also raises the issue that such employers do not know how to approach the implementation of such a scheme and how to communicate about it with their team. Research from Floorinsite/Floors Magazine explains that while smaller employers are largely in support of auto enrolment, there is still an element of uncertainty regarding how to operate the workplace pension scheme.

There is also a lack of clarity regarding essential details such as staging dates. Just 59% of micro-employers were aware of their minimum contribution requirements, which demonstrates how important this support really is.

A study from the Department for Work and Pensions supports these findings as it shows that many smaller businesses utilised intermediaries and guidance from the Pensions Regulator to ensure engagement with auto enrolment and their ongoing duties.

Smaller teams often lack specialist employees with the time and skills to focus on completing all aspects of auto enrolment to the highest standard, whereas larger organisations may be able to outsource or to delegate. The study also showed that finance and accountancy firms have been a valuable source of information and guidance for smaller outfits.

The Risk of Playing Games

For those companies where budgets are tight and contributions increases have manifested in major concerns, employers may be tempted to encourage their employees to opt out.

Money Week reports that regulators are now focused on identifying employers attempting to outwit the system with more than 35,000 breaches identifies and enforcement notices issued in the first quarter of 2018 alone.

Businesses of all sizes need to be extremely vigilant in order to avoid anything that could even be considered as encouraging their employees to opt out, as it is illegal to encourage or pressure employees to do so.

While there are fears that the recent increases in tandem with such breaches may encourage higher opt-out rates, current research from the Department for Work and Pensions shows that 85% of staff employed by small and medium-sized enterprises have chosen to stay within the schemes set up for them.

Smaller Businesses and Larger Contributions

In order to maintain this success, small business owners need to take the initiative and access the support available to them. While options such as equity finance and the Enterprise Investment Scheme may unlock capital for those businesses seeking additional support with their growth model, making more cost-effective decisions is a far more accessible way to free up additional space in the budget.

Our expert advisers at Vintage Corporate will identify the most cost-effective workplace pension plan providers for your set-up and help you to factor current and future increases into your business plan.

We will also streamline your workplace pension scheme process to ensure minimum cost spend and maximum productivity. Our team will also offer advice on product grouping and subsequent potential discounts to see if this is a solution that fits with your business goals.

Our advisers will ensure that you are on track to fulfil all compliance duties and communicate clearly and to the required standard with your employees. There is no doubt that every business can harness the success of auto enrolment and use it to their advantage as a way to attract and retain talent, as well as encourage loyalty. It’s simply about knowing how and when you need to ask for help along the way.

For more details, advice and guidance on any aspect of auto enrolment, our team at Vintage Corporate will be happy to hear from you – just call 020 8371 5232 or email