Employers could face unexpected additional administration and contribution costs for low-paid employees who they may have previously discounted under the pension rules.
The requirement for earnings is measured in pay periods. If an individual undertook overtime during a week’s wage period and was consequently over the pro-rata equivalent of £8,100 per year, then they would have to be enrolled into the pension scheme. This would apply even if their annual take-home pay was less than £8,100.
Steve Wood, Head of Projects at Helm Godfrey, argues that workers may find themselves caught by the regulations because they have carried out additional hours over Christmas or received a bonus payment.
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“This could be another administrative and cost burden for employers, who will have to make pensions arrangements for people to make what are essentially negligible contributions,” he said.
The consequences for staff mean that they will remain enrolled unless they opt out of the initiative. The minimum earnings level to make contributions is even lower than the enrolment threshold, at around £5,500. If the pro-rata wage drops below this amount during any pay period then employee contributions would stop.
Salary levels are not the only element that the company warns could be problematic. It suggests reviewing the terms of relationships with workers, agency staff, contractors and self-employed service providers, to ensure that the correct eligible employees have been identified.
Wood commented: “Employers could be liable for enrolling a whole host of workers that they had not bargained for, and the process of establishing these relationships will inevitably add further to the costs of compliance with the new duties.”
