We have recently received further information regarding auto enrolment and partners in LLPs.
Following a recent Supreme Court ruling concerning LLPs it has now been recognised that there could be a potential requirement to automatically enrol partners into a Qualifying Workplace Pension Scheme. For this reason the Pensions Regulator (TPR) has produced further guidance and commentary, which as you will see may have an immediate and retrospective impact:
Assessing a ‘worker’ under the Pensions Act 2008
The Court emphasised that there was no single factor that was determinative of worker status, and in particular dependence/subordination was an indicator rather than a requirement of being a worker.
However, partners will only have to be automatically enrolled if they receive “qualifying earnings” (which includes salary, wages and commission but not genuine profit share). If they are “workers” but do not have “qualifying earnings” then they still have the right to request to be enrolled into a registered pension scheme and the right to be provided with certain prescribed information.Automatic enrolment, if required, should take effect from the LLP’s original staging date (with backdated contributions where appropriate). The partner will still have the option to opt-out once enrolled and would need to do so if he does not want to lose any relevant HMRC protections (individual advice should be taken on this if appropriate). If the partner is an active member of a qualifying pension scheme already (and has been at least since the staging date) then no further action need be taken. We would recommend that the employer reviews information in the Detailed Guidance No.1, however, we have highlighted below a number of the key areas of the guidance from the TPR below:
The first step for an employer is to see if they employ anyone classed as a ‘worker’. To do this, they need to understand their contractual relationships.
9. A worker is defined as any individual who:
10. Anyone who has entered into a contract of this type (sometimes referred to as a ‘contract of service’) with an individual is an employer and is required to comply with the new employer duties.Personal service workers15. If an individual does not work under a contract of employment, they may still be assessed as a worker for the purposes of the new duties if they have contracted to perform work or services personally (this is sometimes referred to as a ‘contract of services’). However, an individual who is paid a fee as a self-employed contractor under a contract for services is not normally a worker.
16. The distinction between a ‘contract for services’ and a ‘contract of service’ is much debated in employment law and employers will be used to making the assessment of employee status for employment rights and tax purposes.
17. However, employers should not rely solely on a person’s tax status when assessing whether they are a worker. An individual considered by HM Revenue & Customs (HMRC) as self-employed for tax purposes may still be classed as a ‘worker’ under the new employer duties legislation, if they are in fact working under a personal contract of services.
18. No single factor, by itself, is capable of being conclusive in determining whether a contract is ‘for services’ or ‘of service’.
However, individuals are likely to be considered as personal service workers (workers under the contract of services) if most, or all, of the following statements are true:
19. This list is not exhaustive. As when they are assessing an individual’s status for tax purposes, an employer must take into account all relevant considerations.
This is a complex area and it is clear that the onus falls on the employer to determine and record how they have assessed individuals within the business. As this area is based on employment law we are unable to provide advice and would recommend that legal advice is sought. The above is provided for information purposes only and should not be considered as advice.