Businesses need to be aware of an impending increase in employers' national insurance (NI) contributions that will accompany the introduction of compulsory pensions in 2012, employment consultancy PES has warned.

Companies that don't offer a pension scheme by April 2012 will have to enrol employees into the new government plan and will be required to contribute up to 3% of band earnings, resulting in increased payroll costs.

For example, a company with 100 employees, a payroll bill of £1.5m and an average salary per employee of £15,000 per annum (based on current NI rates) will have an additional cost of 1.5% to payroll.

"Companies should plan a phased introduction of pension benefits over the next few years so that come 6 April 2012 you do not have a sudden hike in payroll costs that could put you at a competitive disadvantage," said Mahesh Dewan, pensions expert at employment consultancy PES.

Companies should plan a phased introduction of pension benefits over the next few years so that come 6 April 2012 you do not have a sudden hike in payroll costs that could put you at a competitive disadvantage

Businesses will not have to contribute where employees have opted out but PES estimates take-up will rise from the usual 50% to as much as 80%.

"An employer who offers the scheme to employees ahead of the deadline will be seen in a good light as they are offering their employees a benefit which they don't legally have to yet," added Dewan.

PES suggests now is a good time to review your current pension arrangements and offers the following tips:

  • Review your scheme and check how the current contribution rates compare against the proposed new arrangements
  • If they are significantly better, you may need to consider whether you can or should introduce additional less generous bands, so that you can automatically enrol employees into this part of the pension scheme to avoid an unnecessarily large increase in payroll costs
  • You may, however, need to consult with employees if you wish to apply this to existing pension scheme members
  • Check whether your current provider is likely to be able to offer any form of auto-enrolment in compliance with the proposed legislation
  • If you only offer pensions to a particular section of your workforce, consider the impact of a new less generous arrangement, and determine whether this presents an opportunity to have one scheme offered to all employees and whether better terms can be agreed with the current provider