FIRMS must embrace the new regulations about workplace pensions or face stiff financial penalties.

Persistent offenders with more than 500 staff can face fines of up to £10,000 a day while small firms employing just five people could be fined £500 a day.

Stephen Groves, independent financial adviser with Garbutt & Elliott’s wealth management division, said: “Clearly doing nothing is not an option.”

The Pensions Regulator is investigating 89 employers over suspected non-compliance of automatic enrolment which was introduced for the UK’s largest employers in October 2012.

The reforms, which will cover medium and small firms between now and 2018, require companies to set up a pension scheme for their employees in line with rules laid out by the Government. Employers must contribute to the scheme, but employees can opt out.

The Pensions Regulator, which monitors workplace pensions, says 1,153 major employers have registered an auto-enrolment scheme so far, with eight per cent facing scrutiny over possible non-compliance with their legal duties.

Lorraine Young, payroll manager at Garbutt & Elliott, who have offices in York and Leeds, said the figures were worrying.

“I fear that we will see more and more instances of noncompliance as smaller firms reach their ‘staging dates’, which is when they are legally bound to implement workplace pensions,” she said.

Mr Groves warned that some pension providers would not be able to cope with the demand created by the changes. Some major providers had already said they might close their books due to over capacity and not accept employers with under six months until their staging date.

He said: “Businesses will have the difficult task of complying with the auto-enrolment regulations at a time of unprecedented demand for the services of pension providers and advisers.”

Lorraine Young said Garbutt & Elliott’s payroll team and independent financial advisers have a close relationship and offer a one stop service.

She said: “Some employers, faced with this deluge of red tape, are already outsourcing their payroll operation and we fully expect this trend to continue.”