Gig economy provides awkward test for AE

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The delivery app Deliveroo recently hit the news when the government ruled the company must pay its workers a statutory rate, unless a court rules they are self-employed.

The Department of Business, Energy and Industrial Strategy (BEIS) was forced to step in when Deliveroo announced a new contract that would pay workers £3.25 per delivery, significantly below the new National Living Wage (NLW) of £7.20 per hour.

Previously, Deliveroo offered £7 per hour and £1 per delivery. The company argued the new rate was lawful because the drivers, instantly recognisable for their teal shirts and large backpacks, are self-employed.

BEIS has now said that the NLW does apply to the drivers. That is, unless the drivers are ruled by HMRC or a court as self-employed. But this distinction doesn’t just have implications for wages.

In terms of auto enrolment (AE) duties, this ruling could have a profound impact on companies operating in the so called ‘gig economy’. The problem for companies like Deliveroo, however, is that the situation remains very murky.

According to Darren Philp, director of policy and market engagement at The People’s Pension, it’s one of AE’s remaining “rough edges”. “Auto-enrolment has done a fantastic job of getting more people saving more for their retirement. But there are some things that need to be looked at, particularly around employment status, including the self-employed, and the impact of people having multiple lower paid jobs.” 

Chris Deeson, chief marketing officer of PensionSync agrees.“It’s potentially quite tricky for automatic enrolment and there probably isn’t enough information to know how this affects automatic enrolment duties,” says Deeson. “There is probably an implicit suggestion along that they should also get holiday pay which would suggest that they should be enrolled.

“But it probably depends on the specifics of their contract and how they are paid; presumably off-payroll to maintain their self-employed status - although that status is now in doubt.”

As Deeson notes, the difference between workers, and contractors and self-employed can be extremely tricky and is effectively an employment law issue rather than a straight pension one.

“As far as I am aware, there has never been a legal ruling specifically on what constitutes a worker for AE purposes and The Pension Regulator always states that it is important that the reasons used in the decision are documented.

“Clarity would probably be welcomed by a lot of people, but it would be hard to frame a test case in a way that could give a generic steer to the wider industry and some of the details could mean that a judgement is more specific.”

Even for contractors, it’s not completely clear who is and isn’t exempt from AE. Contractors paid through an umbrella company are included (and assessed for AE) as are contractors who are placed through a recruitment agency as they normally have an employment contract with the recruiter and therefore are enrolled by them rather than the company they are placed with.

As far as there is black and white, anyone who is processed through payroll (or who was prior to Staging) is almost certainly a worker and it would be extremely difficult to prove otherwise. “I have seen legal advice previously,” adds Deeson, “that suggests that you cannot move people off of payroll onto invoicing to escape the AE duties.

“Anyone paid via invoices and who is processed off-payroll is more likely to have a case for being a contractor, but this is no way a guarantee,” says Deeson. “For example, a make-up artist who uses their own supplies and can has a legal right to substitute an alternate person (usually with agreement by both parties) to undertake the work is probably a contractor, whereas the same make-up artist who is using the company’s make-up and cannot substitute an alternate artist is likely to be a worker for AE purposes.”

The area is essentially waiting for a landmark judgment. TPR has said that it’s monitoring the cases. “We’re aware of the cases and will consider the consequences of any decision for employers and how we will react at the appropriate time,” said a TPR spokesperson.

“The Government is set to review auto-enrolment next year,” says Philp. “While the issue of employment status is ultimately a legal issue, this review is a great opportunity to iron out some of these rough edges and ensure auto-enrolment reaches those that research shows have a real risk of undersaving for their retirement.”

Need a solution to auto enrolment? The People’s Pension can help. Read our FREE guide to setting up a workplace pension scheme.

About Francois Badenhorst

Francois

Francois is the deputy editor of BusinessZone and UK Business Forums.

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