Know where you stand with auto-enrolment
For those contractors who remain unsure as to whether their company’s need to automatically enrol its workers into a workplace pension scheme, then help is at hand.
As a general rule, the new law regarding workplace pensions means that every employer must automatically enrol workers into a scheme if they:
- are aged between 22 and State Pension age
- earn more than £10,000 a year
- work in the UK
Freelancers who are the sole directors and employees of their companies are unlikely to be affected by the changes but the situation becomes a little more cloudy where a spouse is also in the employ of the company.
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.
A word of warning about contracts
A contract does not have to be in writing. It can be a verbal contract between the employer and the worker or the terms of employment can be implied, rather than explicitly stated.
One-person companies
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. If, however, 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.
Office holders
An office-holder is not normally a worker as they have 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 and company secretaries.
In the coming months 1.5 million small and micro-businesses will receive letters from the Pensions Regulator as part of a nationwide campaign, alerting them to their employer duties.
The Pensions Regulator has provided an online service for employers with up to 50 employees to help them prepare for automatic enrolment. The updated ‘Detailed guidance for employers‘ should also be a must read for those seeking to clarify their position.
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