Auto-Enrolment or Workplace Pensions is the Government pension legislation that compels all employers to put a company pension scheme in place for their employees.
This year marks the start of ‘staging’ for small, micro and “nano” employers. This is when a company must have a scheme in place and commence paying contributions for employees. Many employers will need to decide whether one or more of their directors should be considered workers as far as the legislation is concerned.
One Director Companies
The Pensions Act 2008 says that directors are not treated as workers if they’re not employed under a contract of employment to work for the company AND there is no one else employed by the company under a contract of employment.
In other words, a company with just one director and no other employees is exempt from auto enrolment. What this means in practice is that they don’t have to complete a declaration of compliance or set up a pension scheme.
It’s worth noting however that some one director companies may still get a staging date letter from The Pensions Regulator (TPR).
If this is the case, then they should contact TPR quoting their PAYE reference number and tell them that they are a one person company. TPR will then update their records to prevent any more correspondence going out.
Where there is more than one director in a company, each director should be looked at separately to determine worker status.
If any director is employed under a contract of employment, and there are other employees, then that director will be treated as a worker.
But regardless of the status of the directors, if the company takes on an employee in the future, chances are that the new employee will be a worker, and if any of the directors are employed under a contract of employment, they will be workers too.
What About Office-Holders?
Office-holders include non-executive directors, company secretaries, board members of statutory bodies and trustees. They normally won’t have a contract to work for the company concerned so normally won’t be treated as workers.
However they might also have a contract for services for part of their duties, so could be treated as a worker in respect of that contract.
A word about contracts
A contract of employment can be written, verbal or even implied.
In the case of very small companies, for example where a married couple are both directors, it could be that there won’t be written contracts in place – but that doesn’t mean that they will not be treated as workers.
They will need to test themselves against the criteria like any other director.
What if a Director is a Worker?
Where a director is treated as a worker, all the employer duties apply.
In practical terms however, directors might only be receiving nominal PAYE income – e.g. at or just over the National Insurance threshold – with the bulk of earnings paid as dividends.
So although the director might have to be assessed for auto enrolment, they might not have to be automatically enrolled. There will still be duties that must be performed, like having a scheme available and giving workers information, but where there are only one or two directors, this shouldn’t be too onerous.
Limited Liability Partnerships (LLPs)
LLP partners may need to be treated as workers.
Because of a Supreme Court ruling,TPR now say that partners in a LLP might have to be treated as workers for automatic enrolment. They also say that this ruling should be applied retrospectively.
This means that if there are partners of a LLP in an employer who has already staged, they will need to be assessed. If they are treated as eligible jobholders, then they will have to be automatically enrolled now, and employer back contributions will need to be paid from the staging date.
Remember that even if a partner is treated as a worker and the employer duties apply, they might not have to be automatically enrolled. For example an equity partner with no other income will not have qualifying earnings and so would simply be treated as an entitled worker.