Employers have high hopes that their payroll provider will handle the intricacies of auto-enrolment, but some may not be up to the job
If you read nothing else, read this…
- Employers have high expectations of their payroll providers ahead of auto-enrolment.
- Employers must have a clear understanding of the auto-enrolment requirements they have for their payroll provider.
- Payroll providers face the challenge of preparing for both auto-enrolment and real-time information (RTI).
Auto-enrolment has arrived and, as implementation is phased in, employers are looking to their payroll providers for advice and assistance on the best approach. Research by the Chartered Institute of Payroll Professionals (CIPP) shows that many employers expect payroll providers to play a leading role in auto-enrolling employees into a qualifying pension scheme.
Of the 185 employers that responded to the CIPP research paper to understand business readiness for automatic enrolment, published in July, 40% said payroll would take the lead on auto-enrolment, followed by HR (29%).
It is therefore reassuring that 90% of the 21 payroll software providers surveyed have considered what they will offer to their employer clients to manage auto-enrolment, and 83% have consulted, or are consulting, directly with the employers on their books. However, 53% admit to not understanding their software capabilities in respect of auto-enrolment, which supports employers’ anecdotal evidence that payroll providers have been slow to reveal their service offerings.
But Karen Thomson, associate director of policy, research and strategic visibility at the CIPP, says such wide criticism is unjustified, adding that employers must be clear about what they want to achieve if they want to work effectively with their payroll provider.
“What does the employer want the payroll system to do?” she says. “It cannot decide which pension scheme someone should be in. Once it has the data, it will process it, but employers must ensure the payroll system knows somebody’s earnings and their age.”
Thomson says employers must also realise that auto-enrolment is mandatory for them, but not for payroll providers. “As far as the pension obligations go, payroll should be able to categorise applications for national insurance, deduct a pension contribution and produce some sort of reconciliation report and/or schedule for the pension provider.”
Align HR and payroll systems
Bill Thompson, a principal business consultant at Northgate Arinso, says auto-enrolment will require employers to align their HR and payroll systems with what is being offered by their pension provider. “Most of the auto-enrolment functionality is going to exist in payroll and HR systems,” he says.
HR, payroll and pension systems can be linked through a middleware platform, which enables employers to receive and send data from multiple sources, determining a number of factors, including employee eligibility for auto-enrolment, opt-out and re-enrolment.
Top-end middleware can include several layers that allow integration of processes and data, as well as produce management information. Richard Haycock, UK human capital management director at Oracle, says: “The next step is to be able to have relevant information to present back to an employee within an organisation whose responsibility it is to drive a particular process. For 20 years, HR has talked about being more strategic. It has lacked the technology and, in some cases, the skills to take information from the business, analyse it and present it back as a policy.”
While trying to meet employers’ demands on auto-enrolment, payroll providers are also grappling with real-time information (RTI) requirements, which will see employers and pension providers inform HM Revenue and Customs about PAYE payments when these are made in the payroll process, rather than at the payroll year-end. Norman Green, legislation and compliance manager at Logica, says: “Autoenrolment and RTI are meaty requirements.”
Most employers will be legally required to report payroll information in real time from April 2013, and all must do so before October 2013. Required data will include an employee’s name, date of birth, hours worked, payments made, details of deductions, national insurance number and gender.
Neilson Watts, associate product manager at Sage UK, says: “The year-end burden is reduced significantly because employers are submitting more frequently under RTI.”
Hugo Fair, a director at Software for People, says collating data and getting payroll systems ready for RTI is good housekeeping for auto-enrolment. “Data cleansing is always a good thing,” he adds.
CASE STUDY: GOLDEN GATES HOUSING TRUST
Pilot scheme points way to compliance
The Golden Gates Housing Trust has had first-hand experience of submitting real time information (RTI) data to HM Revenue and Customs (HMRC), so it feels prepared for auto-enrolment and the pension reforms.
Working with its payroll provider, Software for People, the social housing provider completed the RTI process in April after volunteering to take part in HMRC’s pilot scheme involving 10 employers.
Sarah Moorcroft, finance and administration officer at Golden Gates, says the data cleanse and system updates required for RTI have made its payroll processes more efficient ahead of its staging date for auto-enrolment in 2013. “We did a full data cleanse as we were going through RTI and that is really good practice,” she says.
The trust has just over 300 employees, who are processed monthly under a single PAYE scheme. Staff are paid by the 15th of each month, half in arrears and half in advance.
Moorcroft says the organisation’s unusual way of paying staff was one reason why it was encouraged to take part in the HMRC pilot. It set up a working party involving payroll and IT to identify problems that might arise during the process.
Software for People liaised with HMRC’s software developer support team and RTI migration team to identify aspects of payroll that needed to be included.
In the run-up to going live, test files using live data were created, so HMRC could check how well Golden Gates’ data matched its national insurance (NI) and PAYE database. Test files allowed the organisation to check whether its software could cope with encrypted RTI values.
Moorcroft says: “The biggest challenge from the organisation’s point of view was making sure all the data was up to date and we had everybody’s information.”
BUSINESS READINESS FOR AUTO-ENROLMENT
66% of employers operate their payroll in-house.
55% of employers have considered the employee opt-out process and are looking to their payroll software provider for assistance.
50% of employers have not yet considered the employee opt-in process. Those that have want assistance from their payroll software provider.
46% of employers are preparing their systems for the mandatory record-keeping requirements, with many seeking assistance from their payroll software provider.
7% of employers have a fully outsourced payroll.
Source: CIPP research paper to understand business readiness for automatic enrolment, July 2012.