Automatic Enrolment – “Automatic” fines! Employer pays £42,000 to TPR after failing to comply with its automatic enrolment obligations
26 / 06 / 2017
The Pensions Regulator (“TPR”) has recently published a report in relation to the failure of Johnsons Shoes Company (“Johnsons”) to comply with its automatic enrolment obligations as an employer. Johnsons’ lack of action led to delays in compliance and resulted in £42,000 being payable to TPR, some 100 times more than the original fine.
In addition to the Johnsons report, the TPR has also recently published, for the first time, details of every employer that continues to breach its automatic enrolment duties, as well as those employers against whom TPR has secured a court order. Employers need to ensure full compliance with automatic enrolment to avoid fines and to safeguard their reputation.
1. Johnsons case – further detail
Timeline of events
1 May 2014: Johnsons’ staging date on which its automatic enrolment duties started to apply.
30 Sep 2014: Johnsons failed to complete its declaration of compliance (where an employer confirms to TPR that it has met its duties) by this deadline. TPR was therefore unable to be satisfied that Johnsons had met its automatic enrolment duties by enrolling all eligible staff into a pension scheme from the staging date, paying contributions into it, and writing to staff explaining how automatic enrolment affected them.
30 Apr 2015: Compliance Notice (“CN“) was issued by TPR requiring the declaration of compliance to be completed by 29 June 2015.
3 Jul 2015: Fixed Penalty Notice (“FPN“) of £400 was issued for failure to comply with the CN, with the deadline for payment and completion of the declaration of compliance being pushed back to 30 July 2015. After this, Johnsons began to communicate with TPR and took some steps to meet its duties.
30 Jul 2015: Johnsons requested a review of the FPN on the grounds that it did not meet its automatic enrolment duties due to the pressures of work. TPR rejected Johnsons’ request and decided to uphold the FPN as pressure of work is not a reasonable excuse. Johnsons had received several reminders from TPR in the year leading up to the staging date and therefore Johnsons had significant time to prepare. TPR amended the penalty payment and CN deadline to 18 September 2015.
25 Sept 2015: Johnsons paid the £400 FPN and began to engage with TPR; taking some initial steps to comply. Despite the ongoing support offered by TPR, Johnsons still failed to comply with the CN.
9 Nov 2015: Escalating Penalty Notice (“EPN“) issued for continuing failure to comply with the CN. The EPN warned Johnsons that if it did not meet the CN requirements by 7 December 2015, it would be fined £2,500 per day (this accrual rate was based on the number of workers in Johnsons’ PAYE scheme – see table below).
8 Dec 2015: Johnsons remained non-compliant, so the penalty began to accrue at the daily rate of £2,500.
23 Dec 2015: EPN accrual stopped as Johnsons finally completed a declaration of compliance and provided evidence of compliance. The total sum of the EPN, which Johnsons was required to pay to TPR, was £40,000. Johnsons refused to pay, and attempted to make an appeal to the First Tier Tribunal, which was struck out as the Tribunal no longer had any jurisdiction due to the delay in Johnsons’ appeal. Eventually, TPR had to lodge a claim in the County Court to recover the £40,000 and the £2,000 court fee.
Johnsons eventually paid the full £42,000, following which TPR withdrew its claim. Johnsons are now compliant with their automatic enrolment duties and the staff in their pension scheme are in the same position as they would have been had Johnsons automatically enrolled them on the initial staging date.
2. TPR’s quarterly lists of failing employers
Employers who are not complying with their automatic enrolment duties are now being named in public lists published quarterly by TPR, alongside TPR’s compliance and enforcement bulletin.
Two lists are being published, setting out details of every employer which:
- TPR has secured a court order against after the employers failed to pay an issued EPN; and
- continues to ignore its automatic enrolment duties despite having been issued with, and having paid, an EPN.
Charles Counsell, TPR’s Executive Director of Automatic Enrolment, said “employers who wilfully refuse to become compliant should be in no doubt that we will take enforcement action against them, as these lists show“. He said “automatic enrolment is not an option, it is the law. Allowing some employers to get away with non-compliance is not fair on the employees who are denied the workplace pensions they are entitled to and is not fair on the vast majority of businesses who have taken the time to meet their responsibilities“.
3. Wedlake Bell Comment
The Johnsons case illustrates just how rapidly fines for non-compliance can escalate. The daily accrual rate for Johnsons was £2,500, but as can be seen from the table below, depending on the number of people in the employer’s PAYE scheme, the accrual rate can be as much as £10,000 per day.
|Number of people in PAYE scheme||Daily accrual rate|
|1 – 4||£50|
|5 – 49||£500|
|50 – 249||£2,500|
|250 – 499||£5,000|
|500 or more||£10,000|
Johnsons’ initial lack of action led to delays in complying with its duties, which escalated the matter from a focus on remedial action to one of sanction and redress. If employers are experiencing difficulties in meeting their automatic enrolment duties, they should contact TPR as soon as possible.
Public reports on such cases, in addition to TPR’s quarterly lists of failing employers, is a warning to employers that non-compliance with their automatic enrolment duties can easily lead to financial and reputational damage to their business.
4. How can Wedlake Bell help?
It is important that employers seek professional legal advice in order to ensure automatic enrolment compliance and avoid TPR fines as well as possible reputational damage.
Wedlake Bell has the expertise to advise on all aspects of automatic enrolment, including the following:
- automatic enrolment duties of new employers;
- re-enrolment and re-declaration obligations;
- effectiveness of existing arrangements; and
- identifying who is a “worker” and therefore eligible to be automatically enrolled.
For further detail, please contact Alison Hills of our Pensions and Employee Benefits team.