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UK – Pension Act will cost recruiters a minimum of £25k in set up costs

09 November 2012

Staffing firms are facing “substantial” costs for hiring temporary workers following the automatic pension enrolment which was launched last month, research by professional employment organisation Parasol has revealed.

Since 1 October employers are legally obliged to automatically enrol workers aged 22 and above, who also earn more than £8,105 a year after they have been on assignment for 13 weeks.

“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,” said Anita Whittle, Chief Operating Officer at Parasol.

The new legislation will hit recruiters employing temporary workers on a PAYE basis with initial setup costs expected to reach at least £25k, according to Parasol. This accounts for three months of senior internal resource, legal advice, director input, time spent with clients, and payroll software upgrades.

After consulting with agencies, Parasol now estimates that firms with 800 workers who earn an average of £18,000 per annum on PAYE can expect a total year-one cost of around £81,995 from the staging date if 60% of workers opt out. However, if 30% of agency workers decide to opt out, the projected cost is likely to rise to £111,242.

Smaller agencies employing around 250 workers on £25,000 annual salaries can expect total costs of £49,812, assuming an opt-out rate of 60%. Firms of this size can expect higher costs of £64,200 if 30% of workers opt out.

“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,” said Ms Whittle.

“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.”

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