Auto-enrolment: Small businesses wary of consequences?

Posted on Jun 27th, 2016 | Employment law

Being forced to offer employees pensions could lead to a fall in profits and possibly even redundancies, British small businesses have warned.

The Government is currently part of the way through the introduction of a national automatic-enrolment pension programme. This means that firms of all sizes will be obliged to put workers into long-term saving schemes as well as make contributions to their funds.

But new research from the International Association of Book-keepers (IAB) has found that many of the small businesses affected by the policy expect profits to fall and could be forced to lay staff off.

A fifth of the accountants and bookkeepers surveyed by the IAB said their clients expected the burden of providing a pension would cut margins. And in many cases, business owners said they would have to pass their losses on to their workforce.

February 2018 deadline

The smallest employers, with between one and four members of staff, have until February 2018 to enrol workers in a pension scheme. Businesses will initially have to pay 1% of each employee’s salary into the fund, although this will rise to 2% in April 2018 and then to 3% a year later.

Malcolm Trotter, chief executive of the IAB, said there was still widespread confusion among the smallest firms about how the new system would be implemented and how much it would cost:

“Whilst the Government, through its agencies, is making some efforts to inform businesses about these new obligations, it would appear that many micro and small businesses feel that it isn’t doing enough to support them in either a financial or educational capacity, particularly as many of them are still fighting to find their footing after the recent recession.

“Many IAB members are reporting significant delays in their clients’ preparations for auto-enrolment and we believe that one of the main reasons for this is that some business owners simply have no idea how they will be able to meet both set-up and running costs.”

Commenting on the research, Chris Barnard, Accountancy Technical Manager at Crunch, said:

“Although there are additional financial burdens for micro-businesses, auto-enrolment can be seen as good news for employees as it helps in saving for retirement.

“There are also pension products on the market designed for small companies which are good value for money and do provide information on what is needed to comply with auto enrolment. An example is the government-backed Nest scheme.”

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Written by Chris Torney

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