From 1 October 2012, a new legal requirement on employers to automatically enrol eligible workers into a pension scheme that meets minimum quality standards started to be rolled out. The new employer duties apply to larger employers first, with smaller employers to follow.
By 1 June 2013, employers with more than 4,000 workers in their largest PAYE scheme will be subject to the new employer duties. And, by 1 January 2014, any employer with more than 350 workers in their largest PAYE scheme will be affected.
But what does this mean for your business? What are the trickiest issues for your industry? Will you be ready to meet the new requirements? We think the legislation presents a number of particular challenges for the construction industry.
In this, the third in a four-part series of alerts on key litigation risk areas for construction businesses, we look at the implications of workplace pension reform for the construction industry. Our experts also outline some top tips on what businesses should be doing now to prepare for their 'staging date'.
Workplace pension reform is here
Workplace pension reform applies to all employers, no matter how large or small. But it will invariably affect different industries in different ways.
Some of the financial consequences of the new employer duties will be relevant to all commercial businesses. The legislation requires a minimum employer contribution towards pensions, so compliance will increase staffing costs. It also requires an employee contribution, which needs to be deducted from wages. This will increase the administrative burden on your payroll department.
Other details of the legislation are likely to cause headaches for the construction industry in particular. For example, pay structures for construction workers can often be more complex than for a 'typical' office-based, salaried employee. Workers may receive not only basic pay, but also a combination of shift pay, overtime payments, occasional skilled work allowances including night work allowances and bonuses. Whether some or all of these pay elements need to be treated as pensionable requires some detailed analysis of the legislation and careful coordination with payroll.
The duty to automatically enrol applies to workers who 'work or ordinarily work' in the UK (provided they meet certain age and earnings-related criteria). This could have consequences if your company employs foreign nationals to work in the UK, or if you have British employees working overseas.
The legislation is wide enough to cover temporary workers if they are earning over the trigger levels, meaning that you may have to automatically enrol temporary foreign workers into a UK pension scheme, even if they have no intention of staying in the UK for the long-term. Use of a postponement period could alleviate this problem where the duration of the contract is less than three months. In addition, workers will be able to opt-out of automatic enrolment, but as an employer there are penalties for encouraging them to do so.
There is a related issue of communicating the change to staff - the new regime is complicated and represents a cultural shift towards semi-compulsory pension saving which may take many workers by surprise. Where your workforce is spread across a wide geographic area, working on different sites under different management teams, communicating the changes clearly and consistently may present a considerable challenge.
Finally, the construction industry could potentially be the focus of attention from the Pensions Regulator, which is the body tasked with policing the new legislation. The Regulator has identified a number of 'key risk factors' for avoidance which include use of casual workers, a common practice of cash payments, low profit margins, low pay, smaller businesses, use of 'self-employed' workers, use of agency workers and fluctuating earnings. Many of these factors are common practice in the construction industry, meaning it is likely that the Regulator will focus some of its resource in monitoring compliance in the construction industry.