Technical Update from Mark Cardy
With the Automatic Enrolment letters now starting to land on the doormats of smaller and service company directors we have had a lot of questions about what directors need to do, either for themselves or any employees.
The automatic enrolment (AE) legislation applies to all workers who wholly or ordinarily work in the UK, an employer’s first duty is establishing who its workers are even before categorising them into eligible jobholders, non-eligible jobholders and entitled workers.
The definition of a worker for Automatic Enrolment purposes along with The Pensions Regulator’s (TPR’s) guidance on establishing whether someone’s wholly or ordinarily working in the UK.
TPR will update its guidance as case law develops in this new area of employment and pension law.
A worker is someone who has a contract of employment, which doesn’t have to be in writing. This includes workers employed by charities.
There are special provisions for one-person companies. If an individual is the sole director of a company under a contract of employment, and there are no other employees, the director isn’t a worker. However, as soon as the company has at least one other employee, all the employees including the director are workers.
Section 90 of Pensions Act 2008 confirms that a director of a company (or any corporate body) can only be a worker for AE purposes if they have a contract of employment with the company. This should cover other directors of small owner-managed companies that aren’t one-person companies, even where they award themselves salary as part of their remuneration/profit distribution strategy.
Office holders, such as trustees, non-executive directors, board members of statutory bodies and company secretaries aren’t normally workers. However, if they have a contract for service for all or part of their duties, they are a worker.
Contracts for services
TPR regards some individuals engaged on a self-employed or contract for services basis as workers under the AE regulations, even if HMRC accepts they’re self-employed for income tax purposes. This applies if someone has a contract to perform work or services personally, rather than to undertake the work as part of their own business for a fee. Any employers who think this may apply to them should seek legal advice.
If someone (the worker) has a contract of employment with a firm (the agent) which pays their salary while allocating them to work on temporary assignments with third parties (the principal), the agent is the employer who’s responsible for the AE duties towards the worker. If the agent arranges the engagement for the worker, but the worker then has a contract of employment with the principal which pays their salary, the principal has the AE duties. It’s clear that TPR’s guidance aims to ensure the AE provisions cover all agency workers, no matter what basis they’re engaged on. Anyone involved with agency workers who’s unclear about their duties should seek legal advice.
Absence of a Contract
Where the worker doesn’t have a contract with either the agent or the principal, the next step is to look at the contract between the agent and principal to determine who’s responsible for paying the worker. Whichever of the agent and principal is contractually responsible for paying the worker has the AE duties for that worker.
For further help on meeting your obligations you can either contact your normal adviser or Mark Cardy at Skerritts on 01273 204999 or firstname.lastname@example.org
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