Auto enrolment means clients will suddenly need another statutory service in order to stay compliant with a new law, and most will need help. Indeed, according the National Employees Saving Trust (NEST), 74% of employers expect to turn to someone externally such as an accountant, IFA or payroll provider to meet the challenge of auto enrolment.
The added admin burden, perceived complexity of the new rules, and the pressures on management time make outsourcing auto enrolment management a no-brainer for many businesses.
However, for accountants, making the most of the opportunity is not simple and for most, the issue hinges on price. What should you be charging for setting up and running your clients’ AE programme? How much time will be spent on this? Is it a potential profit centre? Will every client be the same?
One accountant in practice summed it up perfectly: “A big part of the problem for most accountants is that they don’t know what work needs to be done in supporting clients with AE. To my mind it should (from what I’ve read) be a reasonably straightforward process, but with no staff already up to speed we also need to consider training costs.”
Given the confusion among accountants, here are 4 key questions that can help define their AE pricing strategy.
What sort of client?
There is no substitute for understanding your client, because without that it’s unlikely you’ll be able to develop an AE service agreement that delivers on the service they need and generate a return for you. Some quick basics will help:
- How many staff are there?
- What is the typical staff turnover?
- How often are new joiners welcomed?
- What does the client currently pay?
Most accountants will already have a good idea of their clients- the size, complexity and issues they face. Building on this is ritical, as Nicki Godard-Dady of BHG Banks says. “We try to price on the basis that we know the client. It’s the only way we can do – look at each payroll client and assess how much time you spend on it each month and then take that into account when quoting for adding auto enrolment services.”
What sort of service?
“The first thing they need to do is drill into what extra work they’re going to do when adding AE services to their existing offering,” says Paul Mitchell, Director, Corporate Solutions at Wren Sterling. How much extra work? There are a few simple questions to ask:
- Does the existing payroll system have the necessary features all included, or will you have to go outside that to find an alternative solution?
- Does the client want to take any role in the AE programme? Do they want their accountants to offer consultancy on the scheme going forward?
- Will the client need internal training? Are you set up to provide that?
- Does the client expect the accountant to do everything, or will they want to retain some control in house?
- Will the client’s choice of pension providers mean more work for the accountant? Some schemes are more complex and arduous than others, so understanding the differences by researching different providers is crucial.
But what about the clients? What do they expect? One accountant says there remains confusion over what AE work will involve. “Talking the other side of the picture, clients I’ve spoken with so far (normally with them initiating the conversation) have mostly assumed it’s a little extra ‘payroll’ work so don’t seem to be expecting to pay anything extra, let alone hundreds or thousands of pounds for ‘AE Support’. I’m sure no accountant wants to agree a £50 annual support fee then find he has hours of work to do each month…”
Understanding what the ongoing service required is the key step. “We tend to charge by time units – so we did a lot of research to get an idea of what they were charging to ensure we weren’t undercharging,” says Nicki Goddard-Dady, Payroll Manager at Banks BHG, who says her firm has now set up enough smaller clients to have a standard set up charge for AE.
Ongoing support, however, is a trickier proposition. “So now, while we have a platform to quote for services, each client has to be assessed on a bespoke level. Because that reflects the difference between a client with 3 staff members but a very complicated pensions situation, compared with a workforce of 20, which is completely straightforward and easy to service. So it will all depend and you need to work with the client to understand what they need.”
What are the variables?
How likely are the clients’ needs to change? Will the headcount go up or down much during the coming year? There are some factors that will affect the level of complexity involved: For instance, a company with a high staff turnover (sectors including the care, retail, hospitality and license trades in particular may require more AE support.
Similarly, any employer with high staff turnover and a surfeit of variable earners – clients who have shift or timesheet-based staff whose earnings vary month to month, employees doing unforeseen overtime to meet a surge in demand, younger workers crossing the minimum age threshold, new joiners – may well present a complex picture when it comes to pensions assessment.
While we can never predict the future, having some idea of the likely changes ahead for the client can avoid some unforeseen conflict further down the line.
What sort of billing structure?
For smaller clients in particular, the cost of complying with AE is a serious issue. That’s not helped by some advisers taking advantage of the confusion. One ‘business coach’ recently wrote on a blog that any accountant charging anything less than £1000 to set up a business on AE was missing a trick and ‘throwing money away’.
For a small hairdressing business employing four staff, that is a lot of money. To address that, accountants will need to offer flexibility in their fee structure. There are several possible approaches:
Strategy 1: Charge a flat set up fee and then initially adopt a free of charge, cost-plus model where you cover the cost of the software model and nothing else. This would cover the following:
- Staging: defining when the company must set up and begin providing a workplace pension.
- Pension Scheme Set Up: accountants can work with the client and their nominated pension adviser to set the scheme’s features.
- Assessment: all employees will need to be assessed on the basis of their eligibility etc.
- Enrolment: every eligible staff member enrolled on the scheme.
- Communication: starting with the enrolment letter, this will inform employees of their rights, responsibilities.
Strategy 2: Charge a flat set-up fee and then use a modifier – perhaps simply headcount in the first instance – to then arrive at an ongoing tariff. This is perhaps the most common and widespread approach so far adopted and will assess the clients’ needs: what contributions they will be deducting, will they be adopting postponement and so on.
Then it’s a question of working out the ongoing support cost. For many this will initially be a matter of adding £X per employee per month to the existing payroll costs. This ongoing support will then typically include:
- Opting in & joining
- Opting out & refunds
- Ongoing AE Duties
- Contributions & enrolment Files
- Migrating from another payroll
Hints and tips for successful AE pricing
Arriving at a price for these services will depend on a range of variables, but some comparison can be found by looking at other firms or advisers. “Other accountants have talked to advisers about what exactly will be expected on the payroll side, and then work from that,” says Wren Sterling’s Mitchell.
Whichever approach you decided to take, all of these strategies should have two important elements: the opportunity to review; and a range of solutions to suit the client. “We’ve made it clear that we will review the arrangements on an ongoing basis and it will remain on constant review,” says Goddard-Dady of her smaller clients who are now staging.
Paul Mitchell agrees: “Accountants at the beginning of this should road test their fee structure: The first few times it will feel clunky, but after a while they will start to get a feel for what works, where the value is, and what the price should be,” he says. “Once there is a decent sample size they will have a much better grasp of what the fee structure should look like.”
Second, it makes sense to offer clients a range of options – they may prefer with a small, or deferred set-up cost but be prepared to pay slightly higher ongoing fees in order to spread the cost. They may want consultancy as time goes on, or they may in fact see the accountant as purely the processors and rely on themselves, or other advisers for anything above simple payroll processing.
The ultimate guide to auto enrolment
Everything you need to know about auto enrolment, re-enrolment and workplace pensions in one clear and concise guide.