The friction between AE and payroll software

The interaction between auto-enrolment software providers and payroll is not always what it claims to be says F&TRC director Ian McKenna

The different roles of the pension community and payroll providers are becoming an increasing area of friction within the auto enrolment market.  Each new phase of auto enrolment brings with it new and different challenges, while some old issues keep returning albeit with new twists.

In the early days there was widespread debate around who was best placed to deliver the necessary technology. Payroll software suppliers argued that their crucial role in ensuring staff got paid in a timely fashion made them best placed to address issues around eligibility. Conversely pension providers and adviser firms would contend that payroll suppliers would not necessarily have sufficient knowledge of pension legislation and practice to effectively guide employers. 

There is merit in both arguments. In the run up to auto enrolment payroll software suppliers suddenly found themselves having to prioritise the government’s requirement to deliver real time information to HMRC resulting in most becoming less focused on auto enrolment. With the largest firms enrolling first being important customers to pensions firms and payroll suppliers the employer appears to have frequently been able to make both sides seem to recognise the importance of the part each other plays.

As the focus moves to smaller organisations however this issue seems to be reaching boiling point again. Smaller firms by definition have fewer resources and will lack dedicated staff to deal with auto enrolment issues. But I am coming across increasing numbers of situations where advisers seem to be coming into conflict with payroll providers.

This subject was debated vigorously at F&TRC’s recent Workplace Forum. A summary of the meeting can be found at http://www.adviserforum.com/adviserforum-com/_img/executive_summary_14.03.2014.pdf.

Thus far many auto enrolment software suppliers have talked gushingly about how easily they can integrate with payroll but there is increasing evidence the reality is different. This is going to be one of the key areas that will differentiate different solutions as smaller firms stage.

A consistent view on the most effective technology to use has not yet emerged. Some suggest that payroll integration simply needs to involve a mapping using CSV files. For non-techies this is a format essentially built around spreadsheets that can be manipulated by staff who are not particularly IT literate.

The alternative to this is more complex XML based integrations. Whilst these need IT development, they can be far more automated and in the long term have the potential to achieve greater savings and put a lower burden on employers.

Some intermediaries prefer XML solutions and it is interesting to note that those who argue CSV mechanisms are adequate tend to be those who only have this option and have not progressed to XML. 

It is crucial to dig deeper than just asking if a supplier can exchange data with payroll providers. The adviser needs to know the mechanism used CSV, XML etc. and exactly how much data is automated and most importantly how much manual intervention is actually needed?

Most important of all we need more clarity between pensions and payroll organisations around the best way they can work together to address auto enrolment. A ‘them and us’ attitude helps no one and will only drive up cost for employers.

There are many different payroll providers in the UK. Integrating with all of them is clearly impractical but as much as possible needs to be done to ensure that advisers and payroll providers alike can understand the data requirements for each part of the process, including what is important and why.

Many payroll providers are slightly behind the curve when it comes to auto-enrolment, having concentrated efforts on delivering RTI. But this has helped with the AE procedures as it has tidied up a lot of employer data, resulting in many employers starting the auto enrolment process in a stronger position.

That said there are significant additional data elements needed by pension providers that have not traditionally been captured by payroll systems and as an industry we need to be clear about why these items are important.

If the pension community and payroll providers cannot engage effectively the ultimate losers will be employers and scheme members. It is crucial to find ways for each community to respect the role of the other and find ways to collaborate and interact seamlessly to facilitate their respective roles.

I would be pleased to hear from organisations involved in pensions or payroll who would like to be involved in achieving more consistency and clarity in this area so we can all best help employers.