The evidence suggests small employers are not yet prepared for auto-enrolment. With the staging rate set to increase, the long-predicted capacity crunch may finally hit

Since auto-enrolment began back in 2012, approximately 43,000 employers have already staged.

In 2015 alone a further 45,000 are expected to stage, and by 2016 an average of 45,000 will be staging each month.

That means that 12 short months from now, we will be expecting more employers to stage in just 30 days than did in the past three years put together.

By all accounts, staging has gone relatively smoothly so far, but it is important to remember is that this has been among large to medium sized employers. These are the organisations that most likely have experience providing workplace pensions, and will have at least one person, if not a team, who understands what’s going on.

Even amongst these larger organisation, the recent NEST Insight 2015 report found that 35% had been turned away by a pensions provider, with some independent financial advisers saying that their clients were frequently turned down ).

As the rate of staging increases, we can only expect to see this happening more frequently amongst the small and micro-employers. In fact, this might herald the beginning of the long-awaited capacity crisis predicted by many in the industry.

Inadequate processes

The companies who will be expected to auto-enrol over the next few years will be small businesses, which are unlikely to have vast accounting and finance departments.

Many of these companies also lack HR departments, and are used to communicating in an informal face-to-face way with employees. In NEST’s ‘Small and perfectly formed’ report, they argued that many may need to develop more formal communications to comply with the current regulation around AE.

So we are talking about tiny employers, with little or no existing processes in place, and quite possibly no accounting department. Even worse, 16% of these small businesses don’t even have access to the kind of payroll software that could help ease the burden.

This set of employers are also the least prepared, with only 18% completely sure what AE will mean for them.

What’s more, NEST’s research found that while 83% of the employers who have gone before already had a workplace pension, for those still to stage the trend is reversed, with only 16% currently offering a scheme.

Problems already

It seems that the cracks were already beginning to show towards the end of 2014. The latest figures from the Pensions Regulator showed that he number of employers facing a £400 fine for failing to meet auto-enrolment requirements reached 169 by the end of 2014. A staggering 166 of these were issued in the last three months of the year.

It’s not hard to imagine that the next few years will be a struggle. 1.3 million employers staging in an short period of time was always optimistic, but with small employers not yet sure what needs to be done, and without the resources to implement solutions quickly, we could be facing a turbulent second wave.

With more small businesses getting ready to stage and the regulator taking no prisoners, companies need to begin getting ready now.