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The introduction of the Workplace Pension Reform (commonly known as Auto Enrolment) is just around the corner with the UK’s half dozen largest employers being required to implement the changes as early as October 2012. Coupled with the introduction of Real Time Information (‘RTI’) legislation in early 2013, these make for a time of unprecedented change in payroll. My experience of helping a wide range of employers indicates that there are a number of challenges to overcome to navigate the “Perfect Payroll Storm” that lies ahead.
With such wide-ranging changes to be implemented within a narrow timeframe, there is no room for employers to be complacent or underestimate the effect the changes will have on their business. Operationally, the changes will have wide reaching consequences across multiple workstreams; from payroll and finance to Human Resources, pensions to systems generally. Moreover, there are both separate and common challenges to RTI and Auto Enrolment which must be considered concurrently, creating a complex environment with potentially competing demands.
There are a number of reasons why employers are failing to appreciate the level of challenge that lies ahead: with Auto Enrolment, the legislation is complex and it may well be difficult to visualise how the reforms will be applied in practice at anything other than a superficial level; with RTI, the available guidance on implementation is constantly evolving as issues and challenges become known as a result of the first pilot schemes launched from April 2012. That said I do worry that there’s an overreliance by employers on third party providers to supply the perfect systems solutions to both of these challenges.
Without doubt, the commitment of Payroll and HR software developers and pension providers to deliver support and systems solutions is much more evident than 12 months ago. However, in most cases, the tools available are a long way from providing employers with the complete end-to-end solution that can be used effectively and that is expected by many. Furthermore, employers may find it difficult to integrate “off the shelf” solutions into their current systems and processes. The pressure of developing a bespoke solution to accommodate both RTI and Pension Auto-Enrolment will no doubt come at a significant financial and time cost, both of which employers can ill afford.
From the work we are doing to help employers there is evident concern that without specialist knowledge and in-depth understanding of the legislation for both Auto Enrolment and RTI, such short timeframes in which employers have to meet the statutory requirements could significantly compromise the integrity of an implementation programme. As a consequence, this could leave employers open to greater risks of compliance failure and exposure to the associated penalty regimes, particularly where Senior Accounting Officer certification is required. This could have a detrimental impact on previously good relationships with HMRC and lead to substantial financial penalties as a result.
Timing is pivotal to the success of implementing the forthcoming changes. Interestingly, working with a number of clients with Auto Enrolment staging dates in 2012, it is evident that the timescales for implementation present significant challenges. In some cases, a complete overhaul and reassessment of aspects of Payroll, Pension, HR and Finance processes and systems have been required to accommodate the initial launch, all of which require resource (both money and time) to support. Similarly, with the rapidly approaching launch of RTI, employers would be advised to take steps now to review their data and systems in readiness for their first RTI submissions to avoid rejection of their data files.
Undoubtedly, the reforms are welcome and are intended to improve and modernise systems that are outdated and have limitations in the modern business environment. Experience over the past 12 months has indicated that employers who begin planning at least 18 months in advance are better placed to achieve successful implementation and integration with existing systems. A well thought out implementation plan will enable employers to better understand their new obligations and how these can be incorporated into their business. Well prepared employers will appreciate that successful implementation requires collaborative working with both internal and external parties to deal with all the challenges posed by these reforms. Rest assured though, regardless of when you start to prepare for these changes, the Perfect Payroll Storm is well and truly on its way.
3 key points
- The complexity of the new regimes and the interaction between Auto Enrolment and RTI will allow for some harmonisation of changes in business structures, but there will be competing demands to resolve
- Failure to comply with the reforms can result in significant penalties and, whilst larger employers may face more complex issues, smaller employers are not immune from the risks
- Employers should allow 12-18 months to prepare for these changes
Email: Caroline Jones
Tel: 0117 928 1490