The number of whistleblowing reports made to the Pensions Regulator has jumped 33% in a year, according to Clyde & Co, the global law firm.
Clyde & Co says that the sharp increase raises concerns that many SMEs could face enforcement action from the Pensions Regulator if they fail to prepare for auto-enrolment.
Data obtained directly from the Pensions Regulator shows that there were 1,497 whistleblowing reports* made in 2013/14** compared with 1,985 in 2014/15.
Clyde & Co says the increase in the number of reports to the Pensions Regulator, combined with the increase in enforcement action over automatic enrolment, points towards a growing concern amongst employees that SME employers are failing to comply with the new auto-enrolment regulations.
Under the new workplace pension's law, which came into force in 2012, all businesses must enrol all eligible employees into a pension's scheme or face enforcement action from the regulator.
The deadline for compliance is dependent on the number of staff - businesses with the highest number of employees, 120,000 and over, faced the first compliance deadline in October 2012. Businesses with 30 employees or less are yet to face their compliance deadlines, which stretch over the next 16 months.
Clyde & Co says that the Pensions Regulator has significantly stepped up its enforcement action over the past year. The number of enforcement actions used against employers has risen from just five in Q1 2013/14*** (when the Pensions Regulator started recording these figures) to 247 in Q1 2014/15, a 49-fold increase.
Clyde & Co, which has a pensions practise that acts for trustees, employees and insurers, explains that businesses that fail to comply with the auto-enrolment regulations can face a fine of up to £10,000 per day, depending on the size of the business.
Mark Howard, Head of Pensions at Clyde & Co, comments: "The Regulator's most frequently used power is to issue a compliance notice – an order to take steps to comply with the legislation. However, that should not be seen as a soft touch as failing to comply can lead to a daily fine which could severely impact the profitability of many SMEs."
"The Regulator has also issued fixed penalty notices and unpaid contribution notices. SMEs should be concerned about the latter as if contributions are unpaid for too long the Regulator can order that the employer is liable to pay the employees' contributions as well as their own."
"Given that the Pensions Regulator appears to be ramping up its efforts to crack down on non-compliance, SMEs need to make sure they plan well in advance to avoid any enforcement action."
"While larger businesses have the luxury of HR departments to help them wade through the auto-enrolment process, owners of small businesses will either need to handle the process themselves or outsource it to a suitable provider."
Clyde & Co points out that businesses can postpone auto-enrolment for up to three months, but there a few things to consider.
Mark Howard explains: "SMEs should not see postponing auto-enrolment as any kind of solution. It is to allow employers to align pension payments with payroll for new employees and to avoid having to enrol staff that are on short-term contracts into pensions schemes."
"I would advise all small businesses, yet to face auto-enrolment, to plan ahead. Auto-enrolment is unavoidable, the paperwork and necessary planning can often take far longer than expected."
"Don't bury your head in the sand – identify your staging date, check if your current pension plans are sufficient or what needs to be done to bring them up to standard and which employees may need to be enrolled."
*Excluding statutory reporting of breaches of law under the Pensions Act
**year end March 31
***April-June
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