What happens if an employer fails to comply with the automatic enrolment obligations? - The danger of ignoring a penalty notice

What happens if an employer fails to comply with the automatic enrolment obligations? - The danger of ignoring a penalty notice.

The Pensions Regulator (‘tPR’) can and will fine employers who do not comply with their automatic enrolment obligations, as Johnsons Shoes Company (“Johnsons”) recently found out. After tPR has asked an employer to confirm its compliance with the automatic enrolment requirements, if it is not satisfied a company is compliant, it will issue a fixed penalty notice (‘FPN’). Following this, failure to comply or respond can lead to escalating penalty notices (‘EPN’) and being “named and shamed” by tPR.

Background
Johnsons had an automatic enrolment staging date of 1 May 2014; as such they were required to complete their declaration of compliance confirming to the tPR that they had met their automatic enrolment duties by 30 September 2014.

Johnsons failed to meet the deadline and failed to respond to tPR’s communications. In light of the fact that Johnsons were not fulfilling their automatic enrolment duties and had ignored tPR, they were issued with a £400 FPN, although this was almost a year later.   The notice was paid and Johnsons began to communicate with tPR. However, although they took some steps towards complying with their duties, they did not satisfy tPR that they were fully compliant and were issued with an EPN which increased by £2,500 per day (based on the number of workers in Johnsons’ PAYE scheme) until Johnsons met its automatic enrolment obligations.

By the time Johnsons complied with their obligations the fine stood at £40,000. Johnsons refused to pay and tPR issued proceedings in the County Court to recover the debt.

After some legal wrangling, Johnsons paid the fine in full, including tPR’s £2,000 court fee, and the claim was withdrawn.
 

Comment
Through not complying with their automatic enrolment obligation and failing to engage with tPR, Johnsons found themselves in a situation where they had to pay £42,000 to tPR and back pay employer contributions to the pension scheme of all those automatically enrolled.

Johnsons initially challenged the FPN on the basis that they were too busy.  This argument was given short shrift by tPR, particularly after the time given (almost a year) to Johnsons to comply. Ultimately, employers have to comply with their duties; they cannot get out of it. TPR does seem willing to engage with those employers having difficulty meeting their obligations and perhaps if Johnsons engaged openly and worked towards satisfying their obligations they would not have been issued the EPN in the first place.
 

EPNs are issued based on the number of workers in the employer’s PAYE. The maximum penalty that tPR can issue is £10,000 per day for employers with 500 or more persons in their scheme.

For those unsure of when their obligations kick in, tPR provides a number of tools to assist. Employers with a PAYE scheme set up before 1 April 2012 can check their staging date using http://www.thepensionsregulator.gov.uk/employers/staging-date.aspx. Those established after April 2012 can use Table 1 http://www.thepensionsregulator.gov.uk/checking-your-clients-staging-date.aspx as a guide.
It is important to note that new businesses established from 1 October 2017 onwards will be subject to the employer auto-enrolment duties as soon as they take on staff.
 

Contact our experts for further advice

Gabrielle Holgate, Kate Fellows - Tully

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