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One in five small businesses in the UK say they will be forced to cut staff or introduce pay freezes to combat the costs of auto-enrolment, according to the International Association of Book-keepers (IAB).

The survey revealed that businesses are struggling to find ways to cope with the additional cost of auto-enrolment. Few feel able to pass this cost on to their own customers, as existing profit margins are too small and they fear they will lose out on price to the competition.

Whilst some businesses are being forced to review staff remuneration packages and limit or even prohibit any pay increases for the foreseeable future, others are taking further steps. Redundancies are being considered, with a fifth planning to cut staff hours to avoid paying auto-enrolment or using contractors rather than temporary staff.

One respondent said: “So far, most of our clients are viewing this as part of their overall running costs and are examining ways of either gaining new business or adding value to existing business opportunities. It is making them look closely at remuneration packages for any new employees."

Another respondent summed up the desperate situation faced by many businesses, advising: “In most cases, it is a hit against the bottom line. There is no available resource to fund the additional time spent in preparing and conducting the processes."

The survey also revealed that a quarter of small business owners lack an understanding and knowledge of the auto-enrolment regulations and what is required of them as an employer. Another 25% are demonstrating apathy and are refusing to address the issue at hand.

Malcolm Trotter, chief executive of the IAB, said: “Whilst the government, through its agencies, is making some efforts to inform businesses about these new obligations, it would appear that many micro and small businesses feel that it isn’t doing enough to support them in either a financial or educational capacity, particularly as many of them are still fighting to find their footing after the recent recession.

“Many IAB members are reporting significant delays in their clients’ preparations for auto-enrolment and we believe that one of the main reasons for this is that some business owners simply have no idea how they will be able to meet both setup and running costs. Our members and the IAB itself are working hard to come alongside these firms to provide the supplementary support they clearly need.

"The IAB works very closely with The Pensions Regulator to help our members support their clients with auto-enrolment and recently, The Pensions Regulator has simplified its website to ensure it is specifically aimed at small and micro businesses. It has introduced a new duties checker tool to allow businesses to check exactly what they need to do and when to do it, as well as information to help businesses understand the costs involved.”