For modern businesses, it’s often hard to work out exactly which staff must be automatically enrolled and who is entitled to ask to be included under the new legislation for workplace pensions.
Today, it’s quite common for smaller firms to have a mixture of full-time, part-time and seasonal workers on the PAYE books over the course of a year.
They might also use regular self-employed contractors. Do they qualify for a pension too? It’s tricky.
So how does it all work?
Firstly, staff aged between 22 and state pension age, and who earn over £10,000 a year (or £833 a month or £192 a week) must be automatically enrolled.
Employees aged between 16 and 74 and with earnings of more than £5,824 but below the £10,000 auto enrolment threshold can ask to be enrolled.
Those aged between 16 and 21, or between state pension age and 74 and with earnings above £10,000 a year are also permitted to ask to be enrolled. However, candidates earning between £10,000 and £11,500 do not qualify for tax relief because they are under the tax threshold, so as an employer, it’s worth pointing this out.
According to The Pensions Regulator’s guidance, if you employ fixed term ‘casual’ or non-permanent workers they should be assessed under the same criteria as other workers. This includes farmers, for example, who employ seasonal workers or event organisers who bring in extra staff to cover busy periods, perhaps over the summer.
Those employed under zero hours contracts are a category employers will need to consider as part of their employer duties in exactly the same way.
Dealing with self-employed contractors
What should you do about self-employed contractors? Surely employers don’t have to offer them a pension too?
If it’s the case that a fee is paid to an individual under a contract for services, then no. However, The Pensions Regulator points out that even someone considered self-employed by HM Revenue & Customs (HMRC) for tax purposes may not be excluded from auto enrolment under new employer duties legislation.
It goes on: “If a ‘personal’ contract of work or services exists and the individual is not providing the work as part of their own business, then they would be considered a worker.”
The test for this latter point includes the following questions:
- 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.
Should company directors be included?
What if you don’t employ anyone and you are the director, chief cook and bottle washer? By definition, you are not a worker, so there are no auto enrolment duties.
Similarly, if there are a number of directors 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. However, if two or more have a contract of employment, they could be viewed as workers if they qualify under the above guidelines.
If you are going through auto enrolment, workplace pension provider Smart Pension has published a helpful free ebook called Auto Enrolment – The Essential Guide for Small and Medium Businesses. Download it here.