Automatic enrolment was the headline pensions story of 2012 and is again set to dominate in 2013. It will have brought an estimated 600,000 more people into pension saving by Christmas 2012. While only the largest employers are currently within scope, by the end of 2013 all employers with a workforce of more than 500 people will be required to offer pensions to “eligible jobholders”.
An “eligible jobholder” is a “worker” aged between 22 and state pension age who works, or ordinarily works in the UK and earns over the automatic enrolment earnings trigger of £8,105 for 2012/13 – which is currently linked to the personal allowance for tax purposes. So what an employer needs to determine is how many “workers” it has that fall within these parameters. Unfortunately, the question of who is a “worker” is not that simple.
A “worker” is any individual who works under a contract of employment – i.e. an employee – or who has a contract to perform work or services personally, where the work is not undertaken as part of the individual’s own business.
Certain factors are indicative of worker status. An individual who receives holiday and sick pay, who is paid via payroll and who is provided, by his or her potential employer, with the tools necessary to undertake his or her work, is likely to be a worker. On the other hand, someone who has their own website to market their services and submits an invoice for the services they perform looks more like an independent contractor.
A couple of recent cases have highlighted that there can be a fine dividing line in establishing whether a person is a worker. In one a self-employed hair transplant surgeon who provided a medical group’s customers with services on Saturday mornings was found to be a worker as he was “integral” to the practice, even though he was in business on his own account. In another, a partner of a law firm was found not be a worker, even though the court agreed that she met all the aspects of the statutory definition. The crucial factor here was that as a partner the tribunal held she could not be a “subordinate”, which is a fundamental requirement of employment status.
The automatic enrolment legislation also covers some potentially tricky areas explicitly. For instance, it will generally be a matter of fact as to whether an agency worker is an employee of the agency or the end user.
The legislation reduces the chances of having a debate by providing that if an agency worker does not have a worker’s contract with their agency or the person who hires them, then the auto-enrolment duty falls on whichever party is responsible for paying them.
And if that cannot be determined, the duty falls on whichever party actually pays them. Similarly, most directors are excluded from being workers (and therefore from automatic enrolment) unless they have a contract of employment with the company and the company employs at least one other person.
Once an employer has established that a person is a worker it is also essential to consider the other parameters for automatic enrolment – the worker must ordinarily work in the UK, earn over the automatic enrolment earnings trigger and be within the relevant age range. The requirement for workers to be ordinarily working within the UK can be difficult to establish if an employee is on secondment or is not physically located in one place, for instance, an airline will need to look at whether flight attendants work in the UK before looking further at the parameters.
Bonus arrangements and allowances may complicate payroll, making it hard to establish whether the earnings trigger and qualifying earnings band on which contributions are paid have been met.
Most companies will have a variety of types of worker and remuneration arrangements. Whilst it may be easy to establish most people’s eligibility for automatic enrolment, others may not be so simple to categorise. An employer who fails to automatically enrol an eligible jobholder will be in breach of their duties under the legislation. Such a failure could leave them open to enforcement action from the Pensions Regulator which may include fixed penalty notices or fines on an escalating scale of up to £10,000 per day as well as the requirement to take remedial action to enrol the missed employee.