A rising number of horror stories are emerging from employers and pension providers about how some payroll providers have failed to step up to the mark when it comes to auto-enrolment.
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- Processing pay and pension contributions has been an issue.
- Auto-enrolment consultants have seen organisations’ payroll providers over-sell their solutions.
- Payroll providers have struggled to send out legal communications.
- A second wave of purchasing is taking place, with employers switching providers.
The payroll function’s role is vital for the smooth, ongoing delivery of auto-enrolment. It is the function that holds and transfers the crucial data that enables employers to comply with the legislation and ensures that the right employees contribute the right amount to pension schemes at the right time.
If pensions and payroll managers are not able to identify, for example, job holders within the set pay brackets and age brackets laid down in legislation, as well as opted-out staff (and when they have to be re-auto-enrolled), plus a range of other auto-enrolment parameters, they will be left with a headache, and employers will fall foul of The Pensions Regulator.
Payroll providers slow to change
Unfortunately, some payroll providers have been slow to change their systems to cope with the demands of auto-enrolment, which started to affect large employers from October 2012. The tight timescales involved in processing pay and pension contributions have been a particular issue.
Mark Futcher, a partner at Barnett Waddingham, says: “We are seeing a number of problems with payroll providers which have left many organisations having to upgrade, switch providers or buy extra modules because it went wrong.”
Some employers are having to run dual payments because their payroll provider over-sold its auto-enrolment solution. “Payroll providers are now seeing and understanding the importance and emergency of auto-enrolment and have stepped up their game, but it is late coming,” says Futcher.
Compared to pension providers, many payroll providers were slower to get to grips with the auto-enrolment process, possibly because they were focusing on the real-time information (RTI) legislation that had to be complied with from 6 April 2013.
Jamie Jenkins, head of workplace strategy at Standard Life, says: “Pension providers were working on auto-enrolment earlier than their payroll counterparts, but payroll plays an important part, if not an equal role.”
Multiple payrolls throw up greatest challenges
Many employers have several payroll systems in place, and larger organisations could have dozens running at the same time. It is the data that feeds to and from these myriad payrolls that can throw up the greatest challenges.
“This is where the complexities come in,” says Jenkins. “Employers don’t sit there with one payroll, they have several. Quality of data is required for auto-enrolment, it is generally greater than usual, especially with fluctuating pay over periods of time. The different pay periods and payroll cut-offs have also made it more complicated and caused a problem.”
The Employee Benefits/Capita Pensions Research 2013, published in August 2013, found that of the 108 respondents that had auto-enrolled staff, only 43% said HR/payroll systems were able to cope with auto-enrolment rules.This indicates that those yet to comply with auto-enrolment are in for a nasty shock. Because the same research found that 77% of the 236 respondents that had not yet auto-enrolled think their payroll systems will cope with auto-enrolment rules.
Middleware can be the solution
Middleware suppliers say their technology eases the burden of auto-enrolment, but critics say it is too complex and expensive for most auto-enrolment needs.
Sean McSweeney, auto-enrolment specialist at Chase de Vere, says: “This technology can be integral to the payroll system used, or stand-alone middleware from a third party or a pension provider.
”A technology solution can radically reduce and even automate ongoing auto-enrolment compliance. The downside is that middleware can be expensive and even over-engineered at times. Employers need to understand all their options.”
Second wave of purchasing
The payroll market is seeing a second wave of purchasing as some employers change payroll providers because their existing one could not get its system up and running.
Melissa Goddard, director of pension solutions at Ceridian, says: “Organisations need to really think about what solution they are going with because it may not work with their pension provider. We have seen a second wave of purchasing because of these problems. But these should start easing because there is more flexibility in the legislation.
“Employers have been coming to us saying they went down one route and it didn’t work for them.
“The general issue we have seen is that organisations are trying to join up two different functions that have traditionally never had anything to do with each another.”
Lack of legal communications
Now pension providers and payroll providers have to talk to each another and not simply pass over data, as in the past. “Suddenly we are in a position where these two third parties have to talk to each other and communicate effectively,” says Goddard. “Employers are seeing that they have not come together in the right way.”
Employers have also encountered problems with payroll providers where they are unable to send out the necessary legal communications.
Laith Khalaf, head of corporate research at Hargreaves Lansdown, says: “The waiting time for this information runs into months. With the potential auto-enrolment capacity crunch looming, this is a headache employers could do without.
“Pension providers have helped many organisations draft their auto-enrolment communications where their payroll provider has failed to do so.”
With the payroll function playing catch-up on auto-enrolment, it can take a lot of effort by employers to keep it on track.