Automatic enrolment – who is a “worker”?
While some of the largest employers have already started enrolling “eligible jobholders” into a qualifying pension scheme to meet their automatic enrolment obligations, for most the duty bites from this year onwards, with all existing employers needing to comply by 2017.1
In this Alert:
- For the most part it will be clear who is an “eligible jobholder”, but employers should ensure they have sufficient time to determine any difficult cases.
- If someone thinks they have been wrongly excluded they can bring a complaint to TPR.
For most employers the question of who to automatically enrol will be relatively simple.
An “eligible jobholder” is a “worker” between the ages of 22 and State Pension Age who works, or ordinarily works, in Great Britain and has sufficient “qualifying earnings”.2 Subject to the age and earnings requirements, this definition is intended to cover any individuals who are employed by a company (i.e. classic employees, casual workers and agency workers), but exclude the genuine self-employed. In our experience, difficulties only arise where an individual’s employment status is unclear.
First stop is the legislation. A “worker” is defined3 as any individual who:
- works under a contract of employment4 (an employee); or
- has a worker’s contract.
A worker’s contract is a contract to perform work or services personally; the individual cannot send someone else to do the work for them, or sub-contract it out. It will not be a worker’s contract if the individual is in fact carrying out the work as part of his or her own business (i.e. he or she is providing a service to a customer).
Unfortunately there is no simple test to determine whether or not an individual is a worker, and TPR acknowledges this in its guidance. However, certain factors point to someone being likely to be treated as a “worker”. For example, a worker will normally be:
- required to perform services personally;
- under the direction of the employer;
- paid holiday and sick pay;
- given the tools needed to carry out the work by the employer; and
- paid via payroll.
There are also factors that tend to indicate that an individual is not a worker. For example the individual:
- has freedom to decide how to provide the services;
- markets their own services;
- has their own stationery;
- is registered for VAT; and
- is paid a fee for the work after submitting an invoice.
TPR cautions that an individual’s tax status (i.e. whether or not they are self-employed) should not be relied on to determine whether they are a “worker” for the purposes of automatic enrolment.
The legislation makes specific provision for the following special cases:
It is possible an agency worker will have a worker’s contract with either the agent or the party they are doing the work for, but where they do not, the legislation5 provides that:
- the party responsible for paying the agency worker; or
- if neither party is responsible, the party which pays the agency worker in practice
is deemed to be their employer for the purposes of automatic enrolment.
A director of a company (including a corporate trustee) will not be a worker simply because he or she is a director, but will be a worker if:6
- he or she is employed by the company under a contract of employment; and
- at least one other person is also employed by the company under a contract of employment.
TPR’s guidance indicates that a secondee “will usually remain a worker for the company from which they are seconded”. However, it advises employers to “examine the contractual and remuneration arrangements for secondees to ensure the correct party carries out the employer duties”.
Trustee of an occupational pension scheme
It is possible that the arrangements under which some individual trustees are working might bear some of the hallmarks of worker status. For example, the sponsoring employer may provide them with tools to help them carry out their duties (e.g. computer access when they are in the office and software (or even tablet computers) to access scheme documents). They may also be paid for their services.
However, a trustee will not be performing his or her role under the direction of the sponsoring employer. On the contrary, trustees are required to act in good faith, in accordance with the scheme’s trust deed and rules and in the interests of the scheme members, which in our view means they are highly unlikely to be categorised as workers for automatic enrolment purposes.
Employers need to assess their workforce well ahead of their staging date to ensure they are including everyone they need to and have time to analyse any tricky cases.
1 Introduced on 1 October 2012, the automatic enrolment duty applies to the largest employers first (those employing 120,000 or more persons in their PAYE scheme)
2 Currently, gross annual earnings between £5,564 and £42,475 (for the 2012/2013 tax year
3 Section 88(3) Pensions Act 2008
4 “a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing”
5 Section 89 Pensions Act 2008
6 Section 90 Pensions Act 2008