To describe pension auto-enrolment and Real-Time Information as hot topics in the payroll world would be something of an understatement.
Over the next five years, HR and payroll departments will have to deal with two of the biggest changes to hit them in decades.
RTI, which goes live in April 2013, means that information will have to be submitted electronically to HM Revenue & Customs every time payroll is run rather than only at year-end.
Auto-enrolment, meanwhile, requires that all eligible employees be enrolled onto a qualifying company pension scheme unless they opt-out. The first staging of what is also known as the Workplace Pensions Reform is set for October this year, which will initially apply to larger firms employing 120,000 or more people.
But it is now time for discussion of the subjects to stop and to focus to the practicalities of implementation instead. This is not least because many employers have tended to under-estimate the impact of dealing with the introduction of two highly disruptive schemes in parallel over a similar timeframe.
Therefore, unless they introduce proper plans and processes, the danger is that the advent of both events could eradicate any benefits that they are supposed to realise.
Ultimately, the impact will, of course, depend on the size and scale of each organisation concerned. Larger ones with sizeable HR and payroll departments should be in a better position to assign dedicated personnel to project manage their initiatives in this area.
No magic buttons
But in smaller companies, where it isn’t uncommon to find the same person or team responsible for both HR and payroll, it represents a huge potential headache. RTI, for instance, will require the collating and sending of 118 separate pieces of information for submission to HM Revenue & Customs
every time payroll is run.
Similarly, auto-enrolment could create a big administrative burden as HR and payroll will undoubtedly be the first port of call for the potentially high-volume of staff queries arising as the system beds in.
But while some organisations already have proper plans in place to tackle this situation, others have simply not allocated sufficient resources to tackle the problem, even at this late stage. It would be fair to say that the high-level of concern in some quarters is evenly matched by low-levels of awareness elsewhere.
In many cases, the fallback position is to rely on software providers and their technology to provide the answer.
However, although technology undeniably has a central role to play and software vendors are adapting their portfolios to deal with the changes, the complexities of both auto-enrolment and RTI can’t simply be dealt with at the press of a magic button.
The successful introduction of both schemes will depend on employers fully understanding what is expected of them and redesigning their internal business processes around those demands. Unless they do, the technology will act as nothing more than a sticking plaster.
From an RTI perspective, this means that organisations will need to introduce new systems in order to collect the fresh data required by HMRC – many necessary details such as passport numbers for foreign workers are unlikely to be held on payroll systems at the moment.
As well as retrospectively collecting necessary data on existing workers, such procedures will also need to be built into the recruitment process to ensure the information is captured from new joiners from the outset.
For auto-enrolment, employers will require similarly accurate information from the start in order to understand who is eligible to take part in the scheme or not.
Suitable processes will likewise have to be implemented to deal with employees who choose to opt out. Because employers cannot be seen to coerce staff to opt out, there is a need to introduce formal audit trails so that they can demonstrate that they have acted in accordance with legislation.
Needless to say, however, matters haven’t been helped by the fact that HMRC has yet to provide crystal clear clarification on the detail of both schemes yet.
Precise information on the new data that organisations need to file in relation to RTI has not yet been published and, while it shouldn’t be used as an excuse not to act, there is still a level of confusion over who will issue the paperwork when it comes to pensions opt-outs: will it be the employer or pension provider?
Although technology is not the central issue, many of the process changes that employers need to make will dictated by software so talking to providers about what functionality they are adding should be high on the agenda.
Organisations must also ascertain whether their software providers are paying for development costs themselves, which means that new versions will be available as free upgrades, or whether they passing are some or all of the costs on to customers.
Grasping the nettle
In some cases, existing IT systems may simply not be up to the demands made by RTI and auto-enrolment and there will be a genuine business case for updating or replacing them. But employers will need to take into account not only practical IT implementation costs, but also the wider impact on their bottom line.
Auto-enrolment, for example, will also almost certainly increase organisations’ payroll bills – and continuing increasing them as the percentage they are expected to contribute mounts over the next five years.
But they will also need to be mindful of another piece of legislation, the Retail Distribution Review, which from the start of next year will fundamentally change the way that group pension schemes are paid for.
Now that a year-long RTI pilot is underway, it is expected to offer a vital learning curve for everyone. But it also means that there is no going back: RTI is here to stay.
In auto-enrolment terms, however, smaller companies at least have a bit more leeway when it comes to staging dates than their larger counterparts – the rolling deadline to comply for those with fewer than 50 employees is between June 2015 and April 2017.
But because of the wholesale nature of the change required to how HR and payroll departments operate, employers need to grasp the nettle. They cannot expect to simply absorb such changes into day-to-day operations.
However, while third parties such as software and pension providers can help, the fundamental responsibility for tackling RTI and auto-enrolment is not something that can be outsourced.
Roger Moore is general manager at HR and payroll software supplier, Bond Teamspirit.