144% rise in number of businesses fined for pension auto-enrolment errors in just a year

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144% rise in number of businesses fined for pension auto-enrolment errors in just a year

144% rise in number of businesses fined for pension auto-enrolment errors in just a year

35,000 businesses fined £42 million in fines in 2017/18

The number of businesses fined by the Pensions Regulator for pension auto-enrolment errors has risen 144% to 35,810 in 2017/18, up from 14,650 in 2016/17* .

Businesses were fined £42m in 2017/18 for pension auto enrolment errors, up more than threefold from £12.6m in 2016/17.

The rise in the number of fines is partly due to the expansion of the auto enrolment pension regime to cover smaller businesses (fewer than 50 employees). Prior to the regime changes, only large and medium sized businesses were required to auto enrol staff into a pension scheme.

The complexity of auto enrolment schemes means that smaller businesses without in-house HR functions are at risk of making errors when attempting to auto-enrol staff. The rise in fines does not necessarily mean that employers are deliberately avoiding auto enrolling staff.

One common problem for SMEs is poor record-keeping. While larger firms will often use specialist payroll software to calculate what pension payments to make on behalf of staff, or pay an accountant for the service, smaller businesses may not have the resources to accurately calculate an employees’ contribution to enrolment schemes.

Smaller businesses can also be fined for something as simple as not providing regular updates to the Pensions Regulator. Failure to provide regular salary updates and data submissions on employees is regarded by the Pensions Regulator as non-compliance, and will result in substantial fines.

Auto enrolment errors can become increasingly costly for employers if they go unreported for an extended period of time. The regulator can make an unscheduled check on an employer, and if they uncover longstanding issues, can levy much larger fines.

Jon Taylor, Principal in our Employment team, comments: “The sharp rise in the number of fines suggests that SME’s are having real problems keeping on top of complex auto-enrolment schemes. While larger businesses will have the necessary infrastructure and expertise to correctly auto enrol workers, the same does not always apply to smaller businesses. Considering the huge number of businesses now being caught by fines perhaps the Pensions Regulator needs to consider moderating the scale of the fees especially for SMEs.”

For more information on this topic, please contact Jon Taylor, or you can give us a call on 0345 070 6000. You can find out more about us, here.