Making auto-enrolment work

  


Fast food giant McDonalds announced today that they will use the National Employment Savings Trust (NEST) for 35,000 hourly-paid workers as part of a two-tier auto-enrolment solution.

Any eligible hourly-paid workers at the burger chain will be auto-enrolled into the National Employment Savings Trust, but salaried workers (around 2,000 employees) will be placed in its existing Friends Life stakeholder scheme.

There seems to be a trend emerging amongst those employers with different workforce segments (such as large groups of low-paid or part-time employees) adopting two tier auto-enrolment solutions – using NEST for the lower paid and alternative arrangements for higher salaried employees. Consultants such as First Actuarial are creating models to advise which groups of employees should be offered NEST, so as to get best value annual management charges from the provider of the second tier of the solution.

McDonalds will begin auto-enrolment for salaried staff on 1 January 2013 and will use postponement to delay auto-enrolling hourly-paid staff until 13 January to fit in with the pay period.

McDonalds will not be alone in delaying auto-enrolment for a number of days or a couple of months and a few days (companies are able to postpone for up to 3 months) for payroll reasons. It is not until we went through a detailed timetable of payroll dates, contribution payment dates and what is required in the auto-enrolment regulations that we at CSC came to a similar decision.

The key high level requirements are:

• If an employee opts out then a refund needs to be paid to the employee within 1 month of receiving the opt out notice.
• If the employee does not opt out then the contributions need to be paid over to the pension provider by the last day of the second month following the month in which auto-enrolment falls.

To avoid the payment of contributions to a provider where an employee decides to opt out we will hold any contributions deducted from payroll until the end of the opt-out period and then either refund these within 1 month of receiving the opt out notice or pay to the provider in the following pension payment processing period.

Taking an example of an employee joining the Company on 15^th August 2013 and, because the Company is operating a postponement period of 3 months, their auto-enrolment date is 15^th November 2013 - they have a month in which to opt out. If the employee does not opt out the contributions need to be paid over to the pension provider by end of January 2014 (the last day of the second month following the month in which auto-enrolment falls). However due to payroll processing dates we would not pay the with-held contributions to the Provider until 9^th February 2014 – too late!

To resolve this if we only postpone to the 1^st day of the 3^rd month (so by 2 months and a number of days) then we will be able to process within the timescales set out in the legislation.

All employers need to review the detail of their payroll and pension payment processes before making a decision in relation to any postponement period they may apply.