Prepare for auto-enrolment shock, recruiters urged
Outsourced employment provider Parasol, which has automatically enrolled thousands of its contractor employees in a workplace pension scheme, has revealed that its opt-out rate has doubled from 12% to 24% in just six months.
However, that figure is still well below the 50% opt-out rate originally anticipated by Parasol’s senior management team prior to the company’s April 2013 staging date.
The warning comes as Parasol publishes a free guide to pension auto-enrolment (AE) for recruiters. The guide, which can be downloaded here, offers guidance on complying with the legislation and shares key lessons from the firm’s own AE launch process.
Parasol managing director Derek Kelly said: “With more than 1,000 medium-sized recruitment firms set to have their staging date between April and July, auto-enrolment looks set to be one of the industry’s biggest challenges in 2014.
“The Pensions Regulator (TPR) believes the sector faces & lsquo;significant compliance challenges’ and has already started visiting agencies. It’s therefore clear that recruiters can expect a high level of scrutiny.
“Agency directors, in common with all business leaders, are naturally keen to get an idea of what their opt-out rates will look like. However, our experience just goes to show how difficult it can be to forecast accurately – particularly when you’re dealing with large numbers of contingent workers on short-term assignments.
“When we announced our initial opt-out rate of 12% back in July 2013, I thought inertia may have been a factor, and predicted that the rate would increase. This has proved to be the case, but a greater proportion of contractors than we anticipated are still choosing to stay in the scheme.
“Opt-out rates are the key auto-enrolment issue for many agencies, but any attempt to coerce or induce workers to opt out could result in a fine of up to £50,000.
“We would therefore urge agencies to tread carefully when communicating with their temporary workers, and not stray into & lsquo;inducement’ territory.”
Parasol, which counts Adecco, Hays and Alexander Mann Solutions amongst its clients, currently has nearly 5,000 contractor employees enrolled in its AE-compliant pension scheme, which is provided by NEST (National Employment Savings Trust).
The Cheshire-based company estimates that the typical recruitment firm employing temporary workers on a PAYE basis will face an initial setup cost of at least £25,000 as it battles to get to grips with auto-enrolment.
That figure includes three months of senior internal resource, legal advice, director input, time spent engaging with clients, plus payroll software upgrades.
Parasol’s guide highlights several “hidden risks” posed to staffing firms by auto-enrolment.
“Agencies should be wary of working with umbrella companies that do not offer contingent workers overarching contracts of employment, as this can lead to ambiguity and disputes over which party in the supply chain is responsible for employer pension contributions”, said Kelly.
“So-called capacity crunch is also becoming a problem sooner than many experts anticipated. This could result in an agency being turned away by its preferred pension scheme provider due to a lack of resources.”
He added: “Above all else, the danger for agencies is a lack of preparation and planning. We already had a private pension scheme in place for contractors, which helped, but even so auto-enrolment posed a major administrative, logistical and technical challenge.
“We set up a special project team, comprising several departments and teams, more than a year in advance of our staging date. I fear that an agency that is approaching its staging date this year, but has failed to adequately prepare, may now find itself forced into crisis mode.”
Parasol recently employed its 70,000th career contractor.