With more small employers now being required to comply with automatic-enrolment obligations, financial penalties are increasing quite dramatically, indicating a hard approach to compliance by the Pensions Regulator.
Last year, we reported on the increase in enforcement action being taken by the Pensions Regulator, in relation to non-compliance with the Auto-Enrolment regime by employers who had passed their staging dates. It was already becoming clear at this time that the Pensions Regulator was utilising all powers at its disposal in relation to enforcing the regime. With 198 Fixed Penalty Notices issued in the first quarter of 2015 (more than had been issued in the entire 2 and a half year period since Auto-Enrolment was introduced) the message was unequivocal - non-compliance will not be tolerated.
One year on, the 2015 first quarter figure is dwarfed by the 2016 first quarter figure of 806 Fixed Penalty Notices, clearly showing an upwards trend and a hard approach to compliance by the Pensions Regulator. In addition, 96 Escalating Penalty Notices have been issued during the same quarter, which again completely outstrips the 4 from the same quarter last year. 3057 compliance notices along with 187 unpaid contributions notices have been issued in the same quarter.
This increase coincides with the timetable of staging dates now reaching small and micro sized businesses who are either now or will shortly be required to comply with obligations under the Auto-Enrolment regime. By April 2017, all employers will need to comply with Auto-Enrolment obligations for their employees and should have appropriate arrangements in place.
Escalating Penalty Notices could have a severe impact on small businesses with fines of £50 per day for employers with 1-4 staff, or up to £500 per day for employers with 5-49 staff. However, the Pensions Regulator makes clear that rising fines can be avoided by engaging early when non-compliance is first identified. They have been clear about using their enforcement powers to encourage remedial action, and if the employer fails to respond or communicate with the Pensions Regulator regarding the alleged failure, it will result sanction and redress.
Swindon Town Football Company Limited were recently issued with fines totalling over £22k after it failed to put eligible workers into a pension scheme or comply with other workplace pension duties. The Club were issued with a compliance notice in August 2014, directing it to automatically enrol staff and pay contributions, but it failed to comply by the deadline of 17 October 2014. The Pensions Regulator stated that "there were several further delays in the employer complying with their duties, and as a result TPR’s intervention escalated from a focus on remedial action to one of enforcement action."
The Pensions Regulator acknowledges that many smaller employers appear to be leaving things until the last minute, and as a result they are using fixed penalties of £400 as a "nudge" to encourage compliance. If an employer does not take action in response to this, or actively engage with the Pensions Regulator to remedy the situation, then the risk of escalating daily penalties being imposed looks highly likely.
Author: Samantha HastieThis information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.