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Sean McSweeney: Employers face auto-enrolment compliance struggle

With over 3.4 million UK workers now self-employed, many employers may overlook the inclusion of contractors within their auto-enrolment plans, says Sean McSweeney

Sean

As we move into the nitty-gritty of auto-enrolment compliance, it is becoming clear the minutae is where many employers may find themselves struggling to meet their duties.

We all appreciate that few clients – particularly SMEs – will have sufficient time, let alone inclination, to read the hundreds of pages of detailed guidance on The Pensions Regulator’s website. In the real world they will leave it to their professional advisers. Auto-enrolment advisers will, therefore, need to have detailed knowledge of their clients’ needs, perhaps in areas where they have had little involvement before.

Let us look at a fairly straightforward and insipid process – assessing the workforce.

The new duties define those individuals who may have to be auto-enrolled as “workers”. This is a new definition which should not be confused with an “employee” or an individual who is “self-employed” under the IR35 tax test.

TPR guidelines define a worker as any individual who: 

  • Works under a contract of employment (an employee) or
  • Has a contract to perform work or services personally and is not undertaking the work as part of their own business

So what does that mean in practice? First it is important not to assume that all workers will be on the payroll. 

This is a particular problem in that many payroll technology and middleware providers claim their technology solution is a one-stop-shop solution to workforce assessment. 

Our experience is the vast majority of employers and other advisers, such as accountants, have little or no understanding of this issue and with over 3.4 million UK workers now self-employed, many employers will have experience of using contractors within their business.

There are surely employers out there who have failed to ensure all their workers have been auto-enrolled.

So what types of “workers” could be missed?  Typical examples include: 

  • Locums
  • Certain agency workers
  • Certain self-employed contractors
  • Partners under a limited liability partnership

No definitive rules

Employers need to understand not all individuals will end up being classed as workers and that there are no definitive rules included in auto-enrolment legislation, only some general guidance.  In addition, with auto-enrolment being so new, there is little case law for employers to refer to.

A recent example of how quickly things can change was the potential treatment of a “partner” under an LLP. On 22 May, the Supreme Court ruled in Clyde & Co v Bates van Winkehof that a partner of an LLP was a “worker” under the Employment Rights Act 1996. The court made no distinction between “equity” and “salaried” partners. Prior to this ruling, previous case law under the ERA said that a partner of an LLP was not classed as a “worker”.

While the court did not mention the auto-enrolment legislation specifically the definition of “worker” under the ERA is very similar to the definition of “worker” under the Pensions Act 2008.

Having been asked for clarification, The Pensions Regulator gave the following guidance: 

  • The Regulator’s view is that an LLP should assume that the Supreme Court’s decision is equally applicable to auto-enrolment
  • The effect of this is not that every partner of an LLP is necessarily a “worker” but they could be
  • LLPs must consider the Supreme Court’s ruling in assessing their workforce

What does this mean in practice?

As the above examples illustrate, “assessing the workforce” is not just about a payroll extract and a technology solution. Employers need to understand all their contractual arrangements and, if appropriate, take advice from a specialist employment lawyer. Given the potential fines for getting it wrong, this should be time and money well spent.

Sean McSweeney is an auto-enrolment specialist at Chase de Vere

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