Few industries can match the retail sector when it comes to the extreme seasonal peaks and reliance on a flexible workforce. This dynamic backdrop makes it all the more challenging, as employers grapple with the implementation of new rules, which give all staff between the age of 22 and the State Pension Age the right to join an employer-run pension scheme.
In what is widely regarded as the biggest shake-up of workplace pensions for 20 years, companies with more than 10,000 staff must automatically enrol all eligible employees by the March 2013 ‘staging date’ deadline. By April 2017, even the smallest employers, with less than 30 eligible staff, will have to fulfil their auto-enrolment obligations.
In an environment where most retailers are already grappling with wafer-thin margins and an abundance of red tape, the new auto-enrolment legislation presents a number of immediate and longer-term challenges.
A major challenge for employers is the lack of fully functional joined-up systems, capable of processing all the nuances of auto enrolment. While many solutions look good on paper, few have been fully road tested. Even those that purport to be able to create the appropriate interface between pension provider, HR and payroll sometimes seem to stop short at working back in reverse, so that full audit trails are in place.
With minimum contribution levels for qualifying workplace pension schemes and the requirement to re-enrol every three years, where individuals have opted out, it all adds up to a range of new responsibilities for which employers will have to plan in advance. Demonstrating to the Pension Regulator that an employer has complied will undoubtedly become an integral part of the new framework, with fines ranging from a fixed £400, rising to £10,000 per day for employers with more than 500 employees, prescribed in the legislation.
The Regulator is supported by a large team of potential whistleblowers, ranging from employees, trustees and providers and is expected to initially police compliance with a soft touch. However, once the honeymoon period is over, we could see significant penalties being issued.
The traditional influx of seasonal part-time workers, in some cases motivated by the opportunity to acquire the latest fashion bargains rather than long-term pensions benefits, could conceivably place greater pressures on those retail businesses that have or are in the process of complying with the auto-enrolment regime. The reality of short-term contracts, absenteeism, late timesheets and untypical spikes in earnings, will test most systems. What will the knock-on effects be and who will undertake the additional administrative workload?
With some experts suggesting it may take up to 18 months to properly plan for auto-enrolment and put a suitable scheme and infrastructure in place, a major question for retailers is how HR and Payroll functions will manage this challenge on a day-to-day basis. The speed and accuracy of processing will be critical factors, as the lack of certainty and auto-enrolment are not good bedfellows.
The key to achieving failsafe and robust processing will always be the implementation of adequate and well-tested systems. These must address the initial issues of communication, processing joiners and paying monies back to individuals opting out of the scheme, as well as have the capability of dealing with the ongoing monitoring requirement of non-enrolled employees once the initial furore is over.
The auto-enrolment project should, ideally, involve representatives from all stakeholders, including Finance, Payroll, HR and the pension adviser. It should not simply be dropped on those who have traditionally dealt with pension issues. The ramifications of this could have long-term implications for the company and its shareholders, both from a cost and reputational perspective. This will allow a project implementation plan to be put at the heart of the programme. The alternative approach, which would attempt to mould the current infrastructure of HR, payroll systems and pension provider into something that works, despite assurances that everything will be all right on the night, is a high-risk strategy.
For retailers the key focus should, therefore, be on committing appropriate time and resources to ensure the appropriate foundations for the auto-enrolment programme are in place, which will be underpinned by ease of day-to-day management and strong governance.
While most retailers will trade through Christmas without the added complexities of auto enrolment, clocks are counting down towards the time when all employers will have a legal obligation to offer access to workplace pension schemes. Putting off the decision on how to approach this challenge could introduce significant further challenges to an already complex framework.