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Few people would have imagined how difficult it would be to decide who is eligible for pensions enrollment and therefore to whom the new employer duties apply.  Are Directors included, what about peripatetic workers, causal staff or agency workers?

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 (ie they cannot send a substitute or sub-contract the work) and is not undertaking the work as part of their own business.

Anyone who has entered into a contract of this type (sometimes referred to as a ‘contract of service’) with an individual is an employer and is required to comply with the new employer duties.  The duties apply in various ways to workers earning over £9,440 who are up to 74 years of age.

The definition of worker 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,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 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.

Those aged 16 to 74 who earn £5,668 a year or less have the right to join a pension scheme. They can only join after your staging date.

Personal service workers

If an individual does not work under a contract of employment, they may still be assessed as a worker for the purposes of the new duties if they have contracted to perform work or services personally (this is sometimes referred to as a ‘contract of services’). However, an individual who is paid a fee as a self-employed contractor under a contract for services is not normally a worker.

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.

This list is not exhaustive. As when they are assessing an individual’s status for tax purposes, an employer must take into account all relevant considerations.

Exemptions from worker status

An individual working under a contract for services with the employer (ie a genuinely self-employed contractor) is not normally a worker and so employer duties do not apply to these people.

But be warned, calling a person as self employed is not the same a being genuinely self employed.  In addition, there are a few exemptions where one or more individuals are employed, but they are not classified as workers.

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.

However, if the company takes on a second worker, and both the director and the new employee work under a contract of employment, then both the director and the new employee will be workers for the purposes of the employer duties and the company will have responsibilities in relation to both of them.  What if you are both Directors?  If you are genuinely both officers of the Company and only drawing dividends, then you are likely to be fine but subject to the potential worker caveats above.

You can read more on the Pension regulators web site here.