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Recruitment agencies facing 25k pensions setup hit

Recruitment agencies facing &pound25k pensions setup hit

The & lsquo;substantial’ cost to recruitment agencies of pension auto-enrolment has been revealed by professional employment organisation Parasol.

Research carried out by Parasol forecasts that agencies employing temporary workers on a PAYE basis could face an initial setup cost of at least &pound25,000, as they battle to get to grips with the legislation.

This figure includes three months of senior internal resource, legal advice, director input, time spent engaging with clients, plus payroll software upgrades.

Parasol arrived at the sum after consulting with agencies to find out the steps they intend to take in preparation for the legislation, though the exact cost will naturally vary for each agency.

According to Parasol’s modelling, an agency with 800 workers who earn an average of &pound18,000 a year on PAYE can expect a total year-one cost of around &pound81,995 from the October 2013 staging date if 60% of workers opt out.

If just 30% of agency workers decide to opt out, the projected cost – including initial setup – rises to &pound111,242.

Meanwhile, Parasol estimates that compliance with the legislation will cost a smaller agency – with about 250 workers each earning &pound25,000 annually on PAYE – a total of &pound49,812 assuming an opt-out rate of 60%.

The predicted cost to an agency of this size, over the first 12 months from the February 2014 staging date, would increase to &pound64,200 if 30% of workers opt out.

Anita Whittle, Chief Operating Officer at Parasol, said: “The new pension auto-enrolment legislation is undoubtedly going to have a major impact on all recruitment agencies that pay workers directly – both from an administrative and a cost perspective.

“In terms of costs, there are not only pension contributions to consider, but also the costs of setting up the pension scheme where agencies will need to take external and costly advice. In addition, changes will most likely need to be made to internal systems.

“Finally, there are also ongoing costs associated with the administration of the pension scheme. Resources will need to be allocated to managing new processes such as assessing workers, opting workers in and out of the scheme, communicating with the pension provider and making the required deductions from workers’ pay.”

Warrington-based Parasol has provided professional employment services to more than 47,000 employees since its launch in 2000.

The company works with major recruiters including Hays, Alexander Mann Solutions, Capita Resourcing and Reed. Parasol offers contractors full employment and employment rights, saving agencies money and mitigating the risks they are exposed to.

Anita added: “The auto-enrolment legislation is undoubtedly well intentioned, but coming hot on the heels of AWR it creates yet another headache for recruitment agencies that are working hard to maintain margins in the face of challenging market conditions.

“Obviously the cost of the legislation to an individual agency will depend on the specific measures it decides to take. However, our research clearly demonstrates that large parts of the recruitment industry will have to shoulder a significant financial and administrative burden.

“It is likely that some clients will resist attempts to pass on the cost of auto-enrolment. Many agencies that pay workers directly through PAYE schemes will therefore have no option but to examine the alternatives on offer, such as using professional employment organisations, in order to limit their liability and remain competitive.”

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