We have run this letter past our employee representatives who seemed quite happy but we thought we ought to check it out before sending it to employees.
‘The Company is legally obliged to introduce the Government’s new National Pension Scheme commencing in April 2014. This will initially be funded by a 1% contribution from both employer and employee (total 2%).
I am pleased to confirm that all staff, who have served 6 months or more with the Company, will receive an increase of 2% to their basic salary from 1st April 2014. I hope you will understand that this new employer contribution must be funded from the annual pay award, and therefore employee’s who elect to join the scheme will see a reduction of 1% from their basic salary increase of 2% in April 14 to coincide with the commencement of contributions.
If anyone does not wish to join the scheme, or is already a member of an existing Company pension scheme, then they will receive the full 2% pay award without deduction.’
It is essential for auto-enrolment to work properly that employee’s decisions should be taken freely and without ‘undue influence’. The Pensions Regulator’s guidance is very clear that offering any of the following is considered an unlawful inducement:
- a longer contract
- promotion
- a one-off payment
- a higher salary
What you are proposing is not entirely clear but it is very obviously seeking to persuade employees to accept a pay rise rather than join a pension scheme under the auto-enrolment regime. It is therefore unlawful even if no-one actually decided to opt out of the scheme.
You should also be aware that you would have no legal right to recover any financial benefit from the employee that you gave in return for their agreement to opt out.
Employees can enforce their rights in an employment tribunal and the Pensions Regulator has extensive powers including the power to issue a fixed penalty of £400 to an employer, as well as an escalating penalty at a daily rate. Escalating (daily) penalties are set at a level to fine an employer the cash flow benefit they are getting by not complying. These penalties are severe, so an employer with between 50 and 249 employees would be fined £2,500 per day.
You should immediately refrain from issuing the letter. You probably need to see the employee reps and explain your ‘mistake’. You could just say that there will be no pay rise or that there will only be a small pay rise but it must not in any way relate to pension enrolment or opt outs.
The guidance provided in this article is just that – guidance. It is not legal advice as every case depends upon the facts. The law is forever changing and you need to keep up with these changes to ensure that you are behaving in the correct way.
Before you take any action make sure that you know what you are doing, or call us for specific advice.
