SMEs should prepare early for mandatory pensions to avoid costly pitfalls
Mandatory pensions for all SME staff from 2014 may dent the bottom line but it needn't be a legal minefield if companies prepare early, according to QualitySolicitors.
From 1st October 2012, all companies who employ 250 or more employees will be required by law to include all those employees in a UK pension scheme. This change in legislation follows the 2011 Pension Reform Act and means that employers are legally required to pay into each employee’s pension plan. Employees can choose to ‘opt out’ but they must do this themselves; an employer cannot do it for them, or be seen to assist them to opt out. The employees will also be ‘re-enrolled’ back into the pension scheme automatically every three years.
Small and medium sized companies do have more time to make the adjustments but should prepare early to ensure both they and their employees fully understand the new laws and are compliant with the new system.
Lorraine Adams, Head of the Employment Department with QualitySolicitors Talbots sets out what SMEs should be thinking about to prepare for the changes.
- Communicate with all staff early and regularly as the deadline for change approaches. Some employees may not be aware that the new pension scheme will affect them or that they must contribute towards it themselves. By informing your staff of the legal requirements in advance, and explaining the manner in which it will affect them, employers will prevent confused, surprised or even disgruntled employees when the pension scheme comes into force.
- Avoid disgruntled employees mounting a legal challenge by making sure you create a robust, comprehensive plan to implement the new pension scheme effectively and communicate it plainly to staff. Failure to explain what is happening to employees can result in ill-feeling, especially when their pay cheque is reduced due to pension contributions being deducted – even if this will benefit individuals in the long term. This ill feeling could lead to potential constructive dismissal claims but will be easily defended by employers if a clear plan was put in place, communicated and implemented. It is also worth noting that employers found to be flouting the new pension laws or encouraging employees to ‘opt out’ could face fines.
- Budget early for the changes to avoid a surprise affect on your bottom line and anticipate any consequent cash flow problems. Logistically and financially, the changes will represent a greater challenge for SMEs, compared to larger companies. Pension schemes will need to be set up and managed, with all employees enrolled. These changes will create both additional admin and costs but planning ahead will benefit SMEs and allow them to implement the new system in the most cost and resource efficient manner’.
Companies with 50 to 249 staff must implement a pension scheme between 1 April 2014 and 1 July 2014; and those with 49 employees or less between 1 August 2014 and 1 September 2016.
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