As far as Workplace Pensions are concerned, an employer now has certain regulatory duties.
The first step for an employer is to see if they employ anyone classed as a ‘worker’. To do this, they need to understand their contractual relationships.
A worker is defined as any individual who:
- works under a contract of employment (an employee), or
- has a contract to perform work or services personally and is not undertaking the work as part of their own business.
Anyone who has entered into a contract of this type with an individual is an employer and is required to comply with the new employer duties. This may include agency workers if they have such a contract with either the agent or the principal (the third party to whom the individual is being supplied by the agent).
Broadly, agency workers are individuals who are supplied by an agent to work for a third party (the principal) under a contract or arrangement between the agent and the principal, and who are not undertaking the work as part of their own business. For example, a person taken on by a recruitment agency that gives that person a temporary assignment to work for someone else. In the absence of a worker’s contract between the agency worker and the agent or principal, the agency worker may still be a worker for the purposes of the new duties.
The final point to note about the definition of worker in paragraph is that the physical location of the employer is not a determining factor when considering an individual’s status as a worker, eg the employer may be based outside the UK.
A note about contracts
- A contract does not have to be in writing
- It can be a verbal contract between the employer and the worker
- The terms of employment can be implied, rather than explicitly stated
- Multiple contracts with one individual will require additional assessment to establish if they are separate contracts or if they should be treated as a single employment relationship
However, an individual who is paid a fee as a self-employed contractor under a contract for services is not normally a worker. The distinction between a ‘contract for services’ and a ‘contract of service’ is much debated in employment law and employers will be used to making the assessment of employee status for employment rights and tax purposes.
Furthermore, employers should not rely solely on a person’s tax status when assessing whether they are a worker. An individual considered by HM Revenue & Customs (HMRC) as self-employed for tax purposes may still be classed as a ‘worker’ under the new employer duties legislation, if they are in fact working under a personal contract of services.
No single factor, by itself, is capable of being conclusive in determining whether a contract is ‘for services’ or ‘of service’. However, individuals are likely to be considered as personal service workers (workers under the contract of services) if most, or all, of the following statements are true:
- The employer relies on the individual’s expertise and expects them to perform the work themselves
- There is an element of subordination between the employer and individual, for example the individual reports to the employer’s managers or directors in respect of the specific operation or project on which they are contracted to work
- The contractual provisions state that the contract is not a contract for services between the employer and the individual’s own business
- The contract provides for employee benefits such as holiday pay, sick pay, notice, fees, expenses etc
- There is a mutual obligation set down in the contract to provide or do the work
- The individual does not incur any financial risk in carrying out the work
- The employer provides tools, equipment and other requirements to the individual to carry out the work.
If an individual is a director of a company and the company has no other employees, that individual is not a worker by virtue of any office that they hold or contract of employment under which they work. The company is therefore not subject to the employer duties in relation to that individual.
Similarly, if the company has more than one director, none of whom have a contract of employment with the company, none of the directors is a worker and the company is not subject to employer duties in relation to those directors. But if two or more directors have a contract of employment with the company, those directors will become workers and the company will have automatic enrolment duties in relation to them. Where the company takes on one or more workers in addition to the directors, the company will have employer duties in relation to those workers, but will not have duties in relation to any of the directors, unless the directors have contracts of employment with the company.
An office-holder is not normally a worker. An office-holder has no contract or service agreement in relation to their appointment, nor do they usually receive a salary or regular remuneration for their services. They may however, be paid a fee for their services or to cover their expenses.
Examples of office-holders who are not normally workers include:
- non-executive directors
- company secretaries
- board members of statutory bodies
It is very important to consider the specific circumstances of the individual. Sometimes a person who appears to be an office-holder may also have a contract of service for part of their duties and will therefore be a worker in respect of those duties.
Employers therefore need to be careful when assessing their workforce. Ensuring that they do so may well confirm that they are working within the Workplace Pensions legislation.