Auto enrolment step by step guide for payroll bureaux
As company sizes are reducing, the proportion of employers with an in house payroll department is declining, and the number of employers looking for assistance from their external payroll provider is dramatically increasing. Employers are looking to their payroll experts to solve the auto enrolment conundrum for them. Without the right level of support, clients will inevitably select their own way to approach auto enrolment, leaving the payroll industry to pick up the baton and decipher the myriad of different processes. Bureaux that do not take a proactive approach are those most likely to have complex and inefficient solutions foisted upon them, by clients who have had to negotiate the legislative complexities on their own. This could lead to: 7 7 7 7 Significant additional resources particularly during peak months Increased nonstandardisation of client base (many ad hoc processes) Lengthier processing times Reduction in client retention Whereas those payroll bureaux who are fully engaged may benefit from: Delivering a supportive solution for their clients Retaining clients Winning new business Developing competitive advantages through simple and efficient administration processes You don t need to be an expert in auto enrolment, but understanding how simple solutions can increase employer experience is important. NOW: Pensions is continually working with employers, bureaux and payroll software companies, to simplify the seemingly daunting impact of the legislation on payroll management. 2 NOW: Pensions Step by step guide for payroll bureaux
This guide explains the process of auto enrolment through a series of defined steps. It is designed to help you take control of auto enrolment and turn the legislation into an opportunity for your business. Step 1. When will it affect my clients? Step 2. Which pension provider suits my business model best? Step 3. How can I influence my clients choices? Step 4. Payroll integration Step 5. Postponement Step 6. Communications Step by step guide for payroll bureaux NOW: Pensions 3
Step 1. When will it affect my clients? At a glance Over the next three years, each of your clients will need to auto enrol their employees. After that, every single payroll run will include a pensions requirement within it. Are all staging dates equal? The number of companies staging in any given month will vary enormously and depending on the shape of your client base, this will significantly affect the amount of work that you need to do. For example, look at the number of companies staging during 2015/16 tax year*: Q1 2015/16 17,100 Q2 2015/16 9,700 Q3 2015/16 16,100 Q4 2015/16 110,000 Based on their PAYE size, most of your clients will stage in a small number of peak months. It would not be unusual for a bureau with 300 clients to have over 100 of those staging in only two or three months. * Source: The Pensions Regulator. 4 NOW: Pensions Step by step guide for payroll bureaux
What do I need to plan? Doesn t my client just pick a provider and go? Many companies are looking for their payroll provider to provide a solution for them. Most companies view this as a payroll compliance issue rather than as an HR or pension issue. Regardless of whether this perception is right or not, following RTI many companies are now reviewing their payroll services in light of how easy it will make auto enrolment for them. I have contacted my larger clients and they have said they already started planning. So I don t need to be concerned, right? Even those that are proactively seeking to resolve their auto enrolment conundrum will be struggling to find a simple solution as most pension providers will take some time to consider whether they want to offer each company a solution or not (and if so, how much they want to charge the client for the privilege). Many of the companies who have staged late have done so because they believed that they had a pension provider, only to find out at the last minute that the provider was only prepared to offer terms for those employees who were already a member of the existing scheme, or who are full time. Some of those clients have changed their pension provider at the last minute, while some now have two providers. Are you set up to manage this scenario for a substantial number of your clients, many of whom will be staging over the next couple of months? Step by step guide for payroll bureaux NOW: Pensions 5
So when should my clients start planning? We think that a reasonable planning session for a small to medium sized company looks something similar to this: 1 2 3 4 5 Six months before auto enrolment staging date Check with any existing pension providers whether they will accept all employees, any costs and what services they will provide. Confirm with their payroll provider whether there are any restrictions in the services they offer and that they are ready for staging clients. The company has a half day workshop on what they are trying to get out of auto enrolment e.g. minimum compliance, or using pensions as part of their recruitment/retention package? Determine who is undertaking the communication exercise is it the pension provider, the payroll provider or internal? Who is going to ensure compliance i.e. who is going to maintain the document repository and confirm that communications have been sent and the scheme is compliant? 1 2 3 4 Three to five months before auto enrolment staging date Confirm decisions to payroll ask them to ensure that they have the correct interfaces in place with the pension provider. Confirm with the pension provider final scheme design i.e. sign contracts/participation Agreements understand what is required to set up the scheme on time. Understand the communications required if they are being undertaken internally. Make any final decisions around postponement. 1 2 One to two months before auto enrolment staging date Confirm that everything is in place with pension and payroll providers. Send pre-staging communications to employees to ensure that they know what is going to happen. So while this is significantly less than the 18 month preparation time that many advocate, this is based on clear and simple decisions being made and providers having a clear knowledge of their position. You may feel that your clients need to be letting you know decisions earlier so that you can manage your peak demand or maybe you have your solution in place and have the majority of the work already automated? 6 NOW: Pensions Step by step guide for payroll bureaux
Step 2. Which pension provider suits my business model best? At a glance While scheme selection is ultimately up to your clients, bureaux can profit from standardised client populations. How different providers work with you and your clients will have a significant impact on client satisfaction and cost. What will my clients expect of me? It varies, but some clients are expecting large parts of the auto enrolment process such as assessment or file uploading to be provided as part of their current package. Proactively managing what responsibilities your clients want you to take on, which you are willing to take on and what the associated charges will be increasingly important. Although your payroll software provider may offer many of these services, different pension providers will be able to plug different process gaps and will integrate with your ability to charge for that service differently. Which provider works best with my payroll software and minimises my workload? The most immediate strength/limitation of your existing software is with which providers it integrates. Assuming it works with the major auto enrolment providers, then the next most important factors relate to how that integration will impact on your efficiencies. Step by step guide for payroll bureaux NOW: Pensions 7
Who is going to undertake the assessment routines? We would recommend that you undertake the assessment of employee calculations within your payroll software, otherwise you have to stop your payroll process each time. An employer will only need to make contributions for workers who are active members of the scheme. This will include: Eligible jobholders Non-eligible jobholders who have opted-in to the scheme Any members who have contractually joined the scheme Some pension providers insist on undertaking assessment, but this will increase your payroll processing significantly every single payroll. It makes significant business sense to do this within your system. Who is undertaking the statutory communications? Communications can be undertaken by the employer, the bureau or the pension provider. The critical thing is that most pension providers only provide communications for their members not for the entitled workers or for the non-eligible jobholders. NOW: Pensions will provide all of the communications for all workers. However, if you wish to provide them, you can turn ours off and you can create your own revenue stream. Who will be responsible for the administration? Aside from sending out communications, there are questions to be answered and opt in and opt out forms to be processed. Do your clients have sufficient knowledge to answer questions accurately? Do you have the spare resources to provide this additional service? Some providers will provide a full contact centre for workers (and employers) and will handle the opt in and opt out processes, before giving you the data as an interface download. How many logins will I have to use to administer my clients? Most providers will provide you with a different log in for each of your clients. We recognise that sometimes this is appropriate e.g. where they upload the files, or where they want access to review their employees. However we also offer the ability for you to have one log in across the remainder of your clients and the ability to upload files with more than one client on it. This can save you sufficient time for example if you have 200 clients and each log in takes three minutes, that could save ten hours each pay cycle. 8 NOW: Pensions Step by step guide for payroll bureaux
Does the pension provider require me to ensure that all errors are resolved before I upload a file, or will they process files and reject any errors? Many bureaux have discovered that this is crucial to the amount of time spent managing data. Some pension providers will only accept files that are 100% correct. This means that you could upload a file, have if rejected and need to find the error, fix it and then upload it again. Other providers, like NOW: Pensions, will process all of the validated records on a file upload and only reject the records with errors, meaning the bureaux only needs to resubmit the records containing errors. What will auto enrolment cost? Auto enrolment costs are completely dependent on the solution chosen. For the client, NOW: Pensions will provide free implementation, statutory communications*, contact centre facilities, document storage and administration of the opt out/in processes when they select one of our standard models. Other providers, including NEST, may charge varying amounts for these, or may not provide these services at all. However, for you the biggest cost could be the additional staff costs required to manage staging of your clients. *We will pass on printing and mailing costs for paper communications, but there is no charge for electronic communications, nor for generating communications for printing. Step by step guide for payroll bureaux NOW: Pensions 9
How efficiently will the NOW: Pensions processes integrate into my own? We believe standardisation is important across the board it is far easier to process clients with a standardised scheme set up, than those with an eclectic mix. Standardisation also increases efficiency and reduces cost: 1 Simple, standard data requirements one file solution. a. we work directly with payroll software providers and b. we are committed to not changing our data requirements. 2 3 4 5 6 Automated client set up we create an employer portal (or add them to your existing bureau microsite) and you then self service to create the payroll timetable that suits you. You can upload files separately by client or batch clients together. Alternatively a client can upload files themselves. Look at outstanding tasks across your client base to allow prioritisation from a single screen. Standardised contribution models although your clients may choose from one or more of five contribution models, you can be confident that all clients only have the same ones available. Uniform processes among clients we offer one system, one type of file and the same processes for all clients. 10 NOW: Pensions Step by step guide for payroll bureaux
Step 3. How can I influence my clients choices? At a glance Standard models can cut through the complexity of options and provide a better solution for employers and employees and a smarter solution for bureaux. But I can t advise my clients regarding their pension schemes can I? We recognise that bureaux are unlikely to want to provide advice to clients, and everyone is nervous about regulation these days. However, there is a difference between advising your client on what may or may not be in their interest and offering them an integrated solution that they can use. The risk is that you offer a solution to a client and it doesn t work out well for them and this reflects poorly on you. However, the bigger risk is that you offer them nothing and they go to an integrated solution elsewhere. There is no regulated advice around pensions for employers, only to individuals. You provide a service to your clients and if you have your systems integrated with a single auto enrolment pension provider or even a restricted number - then you can either put forward a preferred provider, or differentiate costs for using different providers. For example, you may choose to offer one or two pension providers with whom you have integrated systems (usually available from your payroll provider). You may then choose to offer these at a lower charge (or no cost) to a client than a bespoke solution. Step by step guide for payroll bureaux NOW: Pensions 11
What should I look for in a scheme? Each one of NOW: Pensions schemes comply with the regulations set out by The Pensions Regulator. We have devised a set of five standard contribution models designed to cater for every type of business. This includes schemes with different tiering requirements and the facilitation of salary exchange as displayed below: 101 Auto enrolment standard 102 103 Plan 101 Auto Plan enrolment 102 Stepped Plan Saving 104 plus Plan Matched 105* plus saving 104 105 saving* Contributions 1:1 3:2 5:3 1:2 3:3 5:4 1:2 2:4 3:6 5:5 Matching min 2% (until 2017) 3% until 2018 min 4.5% from 2018 Employer caps 6% max and caps minimums as well Basic pay (before deductions) 3 3 3 3 3 Holiday pay 3 3 3 3 3 Statutory pay 3 3 3 3 3 Bonuses 3 7 7 7 7 Overtime 3 7 7 7 7 Commission 3 7 7 7 7 Shift allowances 3 7 7 7 7 Band earning 3 7 7 7 7 Assumptions: 1. You may use a combination of the five plans for groups of employees but you may not have one employee in multiple plans or use the same contribution model twice 2. Immediate vesting 3. Normal Retirement Age is always State Pension Age 4. Lifestyling default is 10 years however employees can elect 5, 10 or 15 years 5. The only contribution model which facilitates dynamic matching of employee contributions by the employer is plan 105 but the structure cannot be altered (eg. offset matching) * Cannot be used if bonuses are >15% of total pay. 12 NOW: Pensions Step by step guide for payroll bureaux
What are the contribution rates of each of your standard models? Plan 101: Auto enrolment standard The minimum based on legislative total contribution requirements on banded earnings 1. Employer contribution Employee contribution Until October 2017 1% 1% October 2017 September 2018 2% 3% October 2018 onwards 3% 5% Plan 102: Auto enrolment plus The minimum based on legislative total contribution requirements but based on basic salary 2. Employer contribution Employee contribution Until October 2017 2% 1% October 2017 September 2018 3% 3% October 2018 onwards 4% 5% Plan 103: Stepped saving An employer driven package which builds up to 9% of total basic pay by 2018. This structure is designed for employers that want to offer an enhanced package but want to phase in their contributions. Employer contribution Employee contribution Until October 2017 2% 1% October 2017 September 2018 4% 2% October 2018 onwards 6% 3% Plan 104: Saving plus An offering for employers that want to contribute more than the minimum. The total contribution of 10% on basic pay, with the employer contributing at least 5%. Plan 105: Matched saving A flexible 1:1 matching scheme based on basic pay with a minimum of 2% and a maximum of 6% where the employer will then match the contribution rate chosen by the employee. 1 Banded earnings are between the statutory minimum and maximum limits as set out by the auto enrolment legislation which is 5,824 to 42,385 for the 2015/16 tax year. 2 Basic pay is the basic earnings of the employee, excluding any fluctuating income, e.g. bonuses, commission, overtime, etc. Step by step guide for payroll bureaux NOW: Pensions 13
How much should I worry about the sign up process? All pension providers will have a different sign up process, however it will impact on bureaux as this is where a lot of the information will be stored including PAYE references, payroll timetables etc. 24 hours Our online sign up tool is designed to allow payroll bureaux to log in and set up a scheme within minutes. When completed, a participation agreement is produced which can be approved online without the need for a wet signature. Once the application is received, NOW: Pensions will provide implementation details within two working days. 1. Choose model design (select from our five standard models) 2. Fill out details 3. Legal signatory reviews and approves application 4. Signatory reviews and submits application 5. NOW: Pensions reviews the application and provides implementation details 14 NOW: Pensions Step by step guide for payroll bureaux
Step 4. Payroll integration At a glance Standardisation of processes and schemes will save pension providers and bureaux money whilst providing a higher quality of service to clients. Data transfer can be achieved for multiple employers on one file per pay period. How long will it take to set up our clients on the pension system? The first time you use our system, we suggest you set aside 20 minutes to set up the payroll timetable, the direct debit information and client details. Thereafter, this is probably a ten minute process for each subsequent client. What is the best way of transmitting data? Most pension providers require data to be sent in CSV files. The big question is therefore how many files? NOW: Pensions has designed data transfer with only one file per pay period and we can even take more than one employer on that same file. Other providers may require multiple files per client per payroll period. Step by step guide for payroll bureaux NOW: Pensions 15
When is the best time to send files? Different providers have different requirements. If your pension provider forces you to give them a file so that they can perform the assessment, then you will need to do this mid payrun. Providers who promote assessment within payroll, usually ask for the file once payroll is closed and the RTI file has been submitted. If your software provider has already integrated with the pension provider then the data may be transferred with a press of a button. How do we download a file to know that someone has opted out? Again this should be simple, NOW: Pensions let you download a CSV file at a time that is most convenient to you in your processing cycle. Want to get ahead and do an early download? No problem, you can do a further download within the same cycle closer to the final cut off the most important thing is that you are in control. Other providers either provide you with no data, or will send you a file on their timetable. I have an employer who would like to introduce a salary sacrifice scheme to make National Insurance savings as well as tax savings. Is this possible? Absolutely. Salary sacrifice is one of those issues that impacts both pensions and payroll and will become more appealing to employers as contribution costs increase in the future. However, at NOW: Pensions we acknowledge that the administration of salary sacrifice sits within payroll and we have therefore set up our sites so that an employer can introduce salary sacrifice at a time that is convenient for them and their payroll team. For us, salary sacrifice is controlled at a member level and therefore we can handle mixed populations. Our only restriction is that we have to have all contributions treated in the same way i.e. we currently can t handle Additional Voluntary Contributions (AVCs) being sacrificed by someone whilst their other contributions are coming from their usual pay. Middleware what is it? Middleware is the product that sits between payroll and the pension provider and undertakes the assessment, but may also produce communications and reporting for employers and allows members to opt out and make decisions. Many of these functions are useful, but NOW: Pensions strongly believes that assessment should be undertaken within payroll systems as this is the most efficient process. 16 NOW: Pensions Step by step guide for payroll bureaux
Step 5. Postponement At a glance Employers can choose to postpone for up to three months, an option particularly useful when dealing with temporary staff. If postponement is to be used, it is best to encourage this to coincide with the beginning of a pay period. This simple measure will avoid potentially complicated part period contribution calculations. Varying postponement periods can apply for different members of staff. Do my clients need to use the same postponement period for their staging date as for enrolling a new hire? No, however from an efficiency and cost perspective for you, it may be that clients followa predefined strategy to make the process simpler, rather than accommodating lots of variations. Postponement for the full three months tends to frustrate workers who wish to opt out, as they can t do it until they have been enrolled. The best use of postponement is to coincide it with the beginning of the next pay period to avoid part period contribution calculations. If this is not possible, or your client is unwilling, then why not encourage them to make the first pay period have a full contribution deduction. This saves manual contribution calculations and may be cheaper for the employer than paying for the cost of your time to allow for a non automated process. Step by step guide for payroll bureaux NOW: Pensions 17
Step 6. Communications At a glance Postponement notices and categorisation notifications must be used within six weeks of staging or a new employee joining. E-versions of communications can save time and money. Payroll or pension providers are able to help with employee communications. Who issues the communications? It is the employer s duty to ensure that communications are issued to all employees. This can be delegated to another party e.g. the pension provider or the payroll bureau, but it is essential that an audit trail is kept. What communications do my employer clients need to send? Depending on their chosen approach, they will need to send the following: Welcome Postponement notices or confirmation of assessment category and options Opt in forms Opt out forms Enrolment letters with confirmation of assessment categories 18 NOW: Pensions Step by step guide for payroll bureaux
What is the best format for communicating? Emails are the best method in terms of cost, reliability and speed. Letters will arrive later and reduce the amount of time that members have to opt out. If employee e-mail addresses have not been provided to NOW: Pensions, employers can elect to have statutory communications for these employees sent to a centrally managed company e-mail address for the employer to print and deliver to the employee within the statutory time period. What do I have to do if a client wants to handle the opt in/ opt out process? Clients can facilitate the capture of opt in and opt out data, but cannot use their own opt out forms these can only be supplied by pension providers or their agents. It is part of our service that we will provide communications for clients, can NOW: Pensions turn off the communication functionality? Yes, we do not want to compete with you. You can turn off the communication functionality within our system to avoid duplication. Step by step guide for payroll bureaux NOW: Pensions 19
Smarter. Simpler. Better. Information correct as at April 2015 NOW: Pensions is a UK occupational pension plan. Membership is only available through an employer, following satisfactory checks on the employer. This is written as a general guide only. It should not be relied upon as a substitute for specific professional advice. Please note, past performance is not a guarantee of future returns. PM00018.0415/2 NOW: Pensions 3rd Floor 164 Bishopsgate London EC2M 4LX Tel: +44 (0) 333 33 22 010 nowpensions.com