Payroll Legislation Comments

Joanne Knowles, Payroll Quality Manager talks about the latest on Auto Enrolment and what this means.

In December 2006, the Government published a White Paper, outlining its workplace pension reforms, including proposals for NEST (the National Employment Savings Trust). Employers will need to automatically enrol their eligible workers into a qualifying pension scheme and make contributions to it.

A link to the white paper can be found here.

Part of the regulations state that employers will have to make a minimum 3% contribution and the employee a minimum 5% contribution to the scheme or a qualifying occupational pension scheme for eligible employees; aged between 22 and the state pension age. The regulations also state that employee will auto enrol into the scheme upon joining the company and every three years thereafter.

In order for an employer to comply with this they may wish to review salaries that they currently offer. They may also need, not only consider the additional administration costs associated with running the scheme but also the preparation required to collect and collate the data for year end.

In October 2010, a review for the Department of Work and Pensions (DWP), ‘Making auto-enrolment work’, looked into the affect auto enrolment will have on employers. According to the review the administration cost for employers with between 50 – 249 employees, in year 1 is estimated to be £57m, with ongoing costs of £10m per year. These estimated costs include employers who may need to pay for legal advice and guidance on the new regulation.

There is also the re-enrolment to consider which is automatic on the employee’s third anniversary, it is estimated this task alone could cost employers £14 per person.

‘Making auto-enrolment work’ also looks into how the regulatory burden on employers and particularly small employers might be eased. Suggestions such as increasing the re-enrolment to 5 years rather than 3 years and allowing employees to opt out of the scheme before a salary deduction is made, however the researchers found that the current criteria was no bigger burden compared to any of the other suggestions made.

The criteria to implement NEST, or a qualifying occupational pension scheme, and auto enrolment and re-enrolment will be phased in between 1st October 2012 to 2017 (see Auto Enrolment Dates). Reviews are then expected be completed in 2017 to assess if any further changes are required.

When the selected date to start using NEST or qualifying pension scheme has arrived, employers must automatically enrol employees into a NEST or qualifying pension scheme and for new starters within three months of their start date. The employee will not be informed about the minimum 5% deduction until they see their payslip. The employee has up to 3 months to decide to opt out of the scheme and request a refund of the contributions that have been deducted.

When the contribution is taken from the employees pay in the first three months, these funds can be held by the employer and not sent to the pension provider, after three months unless the employee requests a refund it is to be assumed that the employee is happy to continue to pay into the scheme and the collected contributions will then be sent to the pension provider.

If the employee has initially opted out of the scheme, after three years of the first contribution being taken, another minimum 5% contribution will be taken. Again without the employee being informed beforehand. The same situation arises, the employer can hold the funds and not send the contribution deducted to the pension provider for three months. If the employee does not request to be taken out of the scheme, then the funds are to be sent to the pension provider.

When auto enrolment is implemented it could cost an employer not only the minimum 3% contribution, but the additional administration burden could lead to the recruitment of extra staff.

Joanne comments “Cascade HR Ltd are currently researching how their product can take away this extra administration burden for employers by working with ‘The Pensions Regulator’. A specification for a payroll driven calculation routine which includes the development of over 40 new fields, with pro rata calculations and reporting requirements has been sent to Cascade HR Ltd, these requirements have already been added to the company’s business plan.

Cascade Payroll customers have already implemented pension salary sacrifice schemes using the standard product with no additional development required.”

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Cascade’s payroll quality manager Joanne Knowles reveals an interesting trend amongst clients using Cascade’s payroll module…

“In March, a survey undertaken by the Chartered Institute of Payroll Professionals (CIPP) stated that electronic payslips were the most popular method of payslip presentation in 2010.

“Now, having surveyed our own clients, we can reveal that electronic payslips really are proving a hit. Sixty per cent of respondents utilising Cascade’s payroll module reported that they are currently embracing this functionality, which ultimately shows that attitudes are changing.

“At one time there was scepticism surrounding the security, practicality and necessity of electronic payslips, when in truth they offer an extremely safe way for employees to receive their payroll information.

“If paper-based payslips are to get into the wrong hands, there is a risk of fraudulent activity such as identity theft. Electronic payslips on the other hand are accessed via secure system log-in, not email as some would expect, therefore ensuring the information is viewed only by the individual with unique password access.

“This expression of caution is perhaps understandable. Payroll as a function affects every working individual so the level of accountability and responsibility is colossal. But so many ordinary tasks in our day-to-day life – whether it be in personal time or in the workplace – are undertaken electronically, so why not adopt this trend when it comes to payroll too.

“As a trusted provider of fully integrated HR and HMRC-accredited payroll software, we consider it our duty to ensure we offer clients reliable, flexible and forward-thinking solutions. Our recently awarded PQP accreditation shows that our payroll specialists know their stuff, so if you suspect you’re not currently making the most of your payroll, or if you think you could improve the ways in which you – as a payroll professional – contribute strategically to the wider aims of your company, why not speak to a member of our team today?”

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Joanne Knowles, Payroll Quality Manager talks about the latest HMRC updates and what this means.

Real Time Information (RTI) is the latest change the government is proposing for PAYE. Legislative changes are continually being introduced and Cascade HR Ltd ensure that the product keeps in line with those changes, as well as gaining HMRC accreditation for the product year after year. However, the actual process for PAYE has not changed since its introduction in the 1940’s, and so the proposal of RTI will have a huge impact on both employers and payroll software providers.

The concept behind RTI is that it will collect information about tax and other deductions automatically each time employers run their payroll. This information will be submitted to HMRC at the same time the employee is paid. Where employers pay their employees via BACS, the RTI data will form part of the BACS information.

RTI is a key component in the Department of Work and Pensions (DWP) plans for the introduction of Universal Credits which is intended to go live in October 2013. ‘The White Paper “Universal Credit: welfare that works”, published on 11 November 2010, sets out the Coalition Government’s plans to introduce legislation to reform the welfare system by creating a new Universal Credit. Universal Credit will radically simplify the system to make work pay and combat worklessness and poverty.’

Cascade HR Ltd attended HMRC workshops and contributed during the consultation stage held during 2010. Following the formal consultation on PAYE Real Time Information, HMRC has now confirmed that RTI will go ahead. The announcement can be found at the HMRC Website here.

Cascade HR Ltd submitted a seven page document detailing their response to the proposal. The software industry as a whole, raised a number of valid issues and concerns, and as a result, publication of the technical packs has been rescheduled to give HMRC time to ensure that the feedback is appropriately considered and allow the necessary time to fully assess the potential impact of any changes before technical specifications are issued.

The technical packs for both the internet/Government Gateway channel and the BACS channel will be published early May 2011. In the meantime an information pack will be issued to software developers which will include:

* A full list of data items and the documents
* Customer journeys describing the end to end process
* An explanation of bank payment methods appropriate for the BACS channel
* The timeline for the pilot group

In addition, the mandation point for larger employers to go live with RTI has been moved to April 2013. This phased implementation will being with pilot groups being introduced from April 2012 with a group of volunteer software providers and their selected customers. Smaller employers and ex pat’s will go live with RTI by October 2013.

Cascade HR Ltd has volunteered to take part in this pilot group, and we have now been assigned a direct contact at HMRC. If you are a Cascade Payroll customer and would like to be involved in the pilot group, please contact Joanne Knowles.

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