TPR answers to questions asked by Aon Consulting Recorded on 30 June 2015 Question 1 I only have a small number of staff - do the rules still apply to me? All employers with at least one member of staff, known as a worker under the legislation, will have automatic enrolment duties, which will start from the employer s staging date. However, a company which has no workers on its staging date will have no duties - and some people are not considered workers. A company director may not be considered a worker. So: or if an individual is the only employee in the company - and is also a director of that company, then they are not considered a worker, if a director is not working under a contract of employment they would not be a worker. Office-holders are not normally considered workers, (e.g. company secretary, nonexecutive director, trustee or elected member) - but they are only excluded for their activities as an office holder. It is very important to consider the specific circumstances of the individual. Sometimes a person who appears to be an office-holder may have a contract of service that includes additional duties and will therefore be a worker in respect of those other duties. Under the automatic enrolment legislation, employers have duties in relation to workers who are aged between 16 and 74 (inclusive) and work or ordinarily work in the UK. Your duties as an employer will depend on your workers qualifying earnings - each worker s salary or wages plus any bonus, overtime, commission and some statutory payments. This is typically their total NI able earnings. DM3109693 July 2015 This content should not be altered on reproduction 1 of 7
An employer will only have to automatically enrol workers who: are aged 22 to State Pension Age and have qualifying earnings above the earnings trigger of 10,000 per annum, or have qualifying earnings above 5,824 per annum - if they ask to Opt in to the pension. These earnings amounts, although often quoted as an annual amount, actually depend on how often the worker is paid. So, for example, a monthly paid worker needs to be paid over 833 of qualifying earnings in any one month, before they trigger automatic enrolment. If they do not need automatically enrolled, a monthly paid worker would need to have qualifying earnings above 486 to have the right to Opt in to a pension which the employer has to make a contribution to. If you have no workers who would need to be automatically enrolled, you do not have to set a pension scheme up - until one of your workers asks to Opt in or join a pension. However, if you do have workers with the right to Opt in, we suggest you do some research so you know which pension providers you might use and you know how to set up a pension. You can get information on how to find a pension provider, if you need one, on our website. Even if you do not need to enrol anyone, some duties still apply (if you have any workers). Once your employer duties start on your staging date, you will have to give each of your staff a letter telling them about their rights to join a pension and you will find a template letter you can use for this on our website 1. If an employer has no workers, they or their advisor can let us know by going to our website 2. Otherwise, if an employer has any workers, you must make a short Declaration of Compliance on our website every 3 years (the first one needs to be done before 5 months after your staging date) and you may receive a fine if you are late doing this. If you nominate yourself as a point of contact for your partnership on our website, we will send you email reminders, as your staging date and the Declaration deadline approaches. 1 unless they are already an active member of a qualifying scheme 2 at https://automation.thepensionsregulator.gov.uk/notanemployer DM3109693 July 2015 This content should not be altered on reproduction 2 of 7
Question 2 Most of my staff don t actually work for me - they are self-employed, contractors, temporary workers or partners in my practice. Who do I actually have to include in my auto-enrolment assessment and duties? It is not just employees who could be considered workers - and so come under the automatic enrolment duties. It makes no difference if they are full or part-time, permanent or temporary. However, anyone who is truly self-employed is not a worker for the purposes of automatic enrolment. If they are running their own business and the employer is engaging with them on a business to business basis, they are not workers. You should not assume, when someone tells you that they are self employed, that they are excluded from the automatic enrolment duties. To establish this, the employer needs to establish whether the person has a contract to perform work or services personally. In other words, they are the individual who has to do the work and they cannot freely send a substitute or sub-contract the work (unless they are unable to perform the work themselves, for example due to sickness). If it is not a personal services contract and they don t have a contract of employment, then they would not be considered a worker (e.g. if it is not required that a particular individual has to do the work, then they are not a worker). So, if an individual (who is not a director) has a contract to perform work or services personally, the employer needs to judge whether or not they are undertaking the work as part of the individual s own business. In doing this, the employer should consider: 1. whether they have control over an individual s method of work (e.g. hours worked)? 2. whether they provide any employee benefits? 3. whether they bear all the significant financial risks in carrying out the work (i.e. the worker is not financially responsible for their faulty work)? 4. whether they provide what is required for the individual to carry out the work (e.g. tools)? If most or all of these things are true, then it would be reasonable to consider that they are not undertaking the work as part of their own business - and therefore they are a personal services worker. DM3109693 July 2015 This content should not be altered on reproduction 3 of 7
However, the list of questions I have just mentioned is not exhaustive and an employer must take into account all relevant considerations and make a reasonable judgement - there is further information in our Detailed Guide (number 1, paragraph 15) that we have published on our web site. If the employer judges that the person is a Personal Services Worker, then they will need to be assessed as a worker for the purposes of automatic enrolment. Regarding partners, in traditional partnerships, the partner does not have an employment contract and draws value from the business instead of salary or wages. Partners are generally judged to be doing work as part of their own business and are therefore not workers. However, in May 2014, the Supreme Court ruled 3 in the case of Winklehof that a partner of a Limited Liability Partnership (LLP) was a worker and made no distinction between equity partners or salaried partners. So, some partners of an LLP may be fall under the definition of worker and need to be assessed under automatic enrolment. Again, care needs to be taken when establishing who is and is not a worker for the purposes of automatic enrolment. Question 3 What are the auto-enrolment regulations if my business doesn t pay a worker directly? If you have a contract with another company for the work being carried out by a worker, then the other company would be considered the employer. For example, if you pay an agency for the work and the worker is employed and paid by the agency, then you will not have any automatic enrolment duties for them - it will be the agency s responsibility. Question 4 How should small businesses assess their employees for auto-enrolment? From their staging date, an employer will need to assess their workers, based on their age and qualifying earnings. The assessment will determine who needs to be automatically 3 in the Clyde & Co v Bates van Winklehof case, 22 May 2014 DM3109693 July 2015 This content should not be altered on reproduction 4 of 7
enrolled. Those who do not need to be automatically enrolled can choose to opt-in or join the pension scheme. Workers who are not automatically enrolled on the staging date, because they do not meet the relevant criteria at that time, will need to be assessed again at each payday thereafter, so that they can be automatically enrolled if and when they do meet the criteria. Some employers will benefit from automating the process with the help of software, such as payroll software. Some pension providers also offer assessment services. However, very small employers who have staff paid the same amount each week or month, may be able to simply tell which of their workers need to be automatically enrolled. Question 5 I m already paying contributions into personal arrangements for my staff. Does this mean I am already compliant? In order for a pension scheme to be used by an employer for its automatic enrolment duties, it must meet certain minimum requirements - so that it is considered a Qualifying scheme. These requirements include: The pension contributions are at least the legal minimum; For personal contract based pension plans, there are written agreements between the employer and the provider - and each member of the pension and the provider - to ensure that contributions will meet or exceed the minimum contribution requirements; The charges payable by members do not exceed the statutory maximum charges. If a pension is a Qualifying Scheme, then for any existing members of that pension, there is no further action required under the automatic enrolment legislation - for as long as they remain active members. However, if and when an employer needs to automatically enrol an eligible worker - or enrol a worker who is eligible to Opt in - they must use an automatic enrolment pension scheme. An automatic enrolment scheme, in addition to having to be a qualifying scheme, must not contain any provisions that: prevent the employer from making the required arrangements to automatically enrol, Opt in or re-enrol a jobholder, or DM3109693 July 2015 This content should not be altered on reproduction 5 of 7
mean the jobholder has to express a choice in relation to any matter (such as making an investment choice, or having to provide any information), in order to be an active member of the pension scheme (for example, the pension must have a default fund). Not all existing pensions will meet these requirements. An employer should find out from their pension provider if their existing scheme meets the criteria to be a qualifying scheme for all the existing members. If so, there will be no duties for the existing active members. Secondly, the employer should find out if they can automatically enrol workers into their existing pension? If the answer is no, the employer will need to find another automatic enrolment scheme, with the same or an alternative pension provider, to use with any workers who need to be automatically enrolled. Of course, if the answer is no to either question, then the employer could ask whether the pension can be changed so that it does meet the requirements. However, in some cases, particularly where the pension is an individual personal pension, it may not be possible to change the policy so that it meets the requirements. We strongly recommend that employers check whether an existing scheme is suitable, at least 6 months in advance of their staging date, to give them time to arrange an alternative pension, if they need to. Question 6 What happens if I don t comply and how will the Regulator be monitoring and enforcing compliance? TPR seeks to maximise compliance by Education, Enablement and then Enforcement. Our primary aim and activity is to support employers and their advisers. We receive data from HMRC on a daily basis and also regularly receive other intelligence (including from whistleblowers). If we do need to take enforcement action, for minor breaches we may start with informal action (e.g. instructions or preventative action). We have statutory powers to gather information and can issue statutory notices and/or penalties (fixed penalty notices 400 or escalating penalty notices). Ultimately, we can use our powers to prosecute under criminal law and/or can carry out civil debt recovery and we collaborate and share intelligence with other enforcement agencies. DM3109693 July 2015 This content should not be altered on reproduction 6 of 7
Our key message though is that we want to help. If an employer is having difficulties with complying with the legislation or has made a mistake, it is best that they contact us at the earliest opportunity, so that we can help them to get back on track as soon as possible. There is a wealth of information on our web site at www.thepensionsregulator.gov.uk. This includes a planning tool that will help employers to plan their activities or oversee the activities of their advisers, so that they are ready in good time. Based on our experiences with employers who have already complied, we believe that observing the following pointers will give the employer the best chance of complying fully and on time: Know your staging date: use our tool now, to check. Nominate a contact to receive ongoing information and support from TPR. Plan early: ideally start 9-12 months before your staging date, so that you have time to assess and resolve the issues that we ve talked about today. Plan to set up a pension and any software you need, 6 months before staging. Test your processes in good time, before going live. Complete the online Declaration of Compliance within the 5 months deadline (5 months after your staging date) - to avoid being fined. ENDS DM3109693 July 2015 This content should not be altered on reproduction 7 of 7