Updated 03 September 2020
What is middleware? And how can it help employers comply with statutory duties? Dion Prideaux-Reynolds gives us more information.
We are reading more and more about auto-enrolment in the press, from The Pensions Regulator and the Department for Work and Pension and as a result employers are slowly gaining a clearer understanding of their statutory duties. One of the issues for small to medium enterprises (SMEs) is how they administer and ensure ongoing compliance? How will they also demonstrate to The Pensions Regulator that they are carrying out their statutory duties?
“The auto-enrolment process is complex and making sure that the appropriate systems are in place is critical to the outcome”
Employers are required to continuously assess their workforce, make contributions, communicate workplace pensions to their employees, report to The Pensions Regulator and maintain records.
The real cost for employers will not necessarily be the actual contributions, as a large number of employers already make some form of contribution to existing pension arrangements, which are available to some or all employees. The real cost for employers is likely to be:
• Administering and complying with automatic enrolment
• Constantly assessing the workforce
• Maintaining accurate records
Most SMEs lack dedicated in-house HR personnel, resources, processes and software and rely on manual paper-based administration with preparatory payroll packages or external providers. They are not geared up to deal with administering automatic enrolment or maintaining records. They need to:
• Keep records of all employees
• Keep dates of birth including state pension age
• Track opt-outs, opt-ins and re opt-in previous opt-outs
• Assess employees at numerous stages, including each pay reference period, to categorise them as entitled workers, eligible jobholders and non-eligible jobholders
• Track movement of employees between the different categories
• Auto-enrol employees and process opt-outs in the prescribed manner
• Keep records for six years and opt-out notices for four years.
All of this will be a drain on an SME’s resources and if dealt with by a series of spreadsheets and paper records, it will be a recipe for disaster.
Larger employers have sophisticated software and dedicated HR resources. The answer for the smaller employer will be to use ‘middleware’, which is often held in the ‘cloud’ and does not require any special software to be installed by the employer. Middleware sits between the payroll and other data sources including the pension providers. These systems communicate with payroll, continuously assess the workforce against the prescribed criteria, issue auto-enrolment statutory notices, provide detailed reports to the employer, issue the necessary reports for The Pensions Regulator and maintain records. Some packages also provide the HR software and employee benefit communication tools, including total reward statements, that SMEs lack and which will help them extract the maximum value from their benefit spend.
The functionality provided by middleware is available from specialist companies or could form part of the pension providers’ hub or as an addition to the existing payroll software.
Ensuring that an employer is ready for auto-enrolment can take some time. The Pensions Regulator suggests starting the review process 12 to 18 months before the employer’s staging date. The process is complex and making sure that the appropriate systems are in place is critical to the outcome. Find an independent adviser to help you start the process.