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26 Feb 2013 12:39pm

Auto enrolment 'will hurt UK business'

The new auto-enrolment rule will make the UK a less attractive place to do business, UHY Hacker Young research reveals

In particular, it will hit small business and start-ups in the UK as it pushes up employment costs by a minimum of £380 a year per employee.

The rule is being implemented in stages and already applies to larger companies. For smaller companies the deadline is June 2015.

At the moment, according to UHY, a worker earning £18,740 currently costs a UK employer £1,553 a year in national insurance contributions (8.3% of salary) which is the lowest level among the G8 countries. However, under the new rule, all employers will have to make a minimum pension contribution of 3% of salary for all employees.

This means that employers could have to pay £1,916 for the same employee, taking their employment costs up above those paid by US or Canadian companies (£1,654 and £1,712 respectively).

For employees earning £46,849 a year, employers would see their employment costs rise from £5,361 to £6,477. This would make it more expensive to employ a worker in the UK than in the US, Canada, Ireland, Denmark and China.

As for executives, the UK is already uncompetitive: an executive earning £187,396 a year costs the company an extra 13.1% of salary – or £24,545 – compared with the £11,130 they would cost in Spain, £11,111 in Germany, £7,660 in the US and the £6,285 in Canada.

UHY head of tax Roy Maugham warns that the cost of employing people on the UK has crept up over recent years: “The UK is being caught up by other countries on employment costs and is about to be overtaken by key economic rivals.”

And he also points out that, while established businesses see auto-enrolment as an advantage, it’s the small start-ups and other newly established companies that will suffer: “These companies, which have already burdened themselves with significant pension costs, are vulnerable to new, smaller competitors that don’t have similar overheads.

“Small businesses will be hit disproportionately hard: they will not be able to absorb the costs of setting up and running a pension scheme as well as a large business with a large HR team.”

As part of its research, UHY calculated the value of employment taxes and social security payments that companies in 25 different countries have to make on top of the gross salaries they pay to their employees. 

Julia Irvine

 

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