Is your company required to have an auto enrolment pension scheme?
We are writing to you to make you aware of the potential need for your company to have an auto enrolment pension scheme. Auto enrolment requires an employer to consider whether its ‘workers’ are eligible to join a work based pension scheme and, if they are eligible, to enrol such workers into a pension scheme and pay some pension contributions. This applies even if there is just one worker.
However, if there are only ‘officers’ of the company (i.e. directors and a company secretary), there may be no requirement to have an auto enrolment scheme.
In what circumstances is a company not required to have an auto enrolment scheme?
In the circumstances which follow, the word ‘director’ includes a company secretary.
- There are only directors in the company and no employees
If the only people carrying out the business of the company are the directors and none has an employment contract, there is no requirement for an auto enrolment pension scheme as there are no workers.
- There is only one director and that person has an employment contract. There is no one else who has an employment contract in the company
The director is a worker because he has an employment contract. There is however a specific exemption from auto enrolment where the director is the only employee in the company.
- There are only directors in the company. One director has an employment contract but there is no one else working in the company
The one director is a worker because he has an employment contract. But the specific exemption from auto enrolment applies in this scenario as well as he is the only person with an employment contract.
How do you know if directors have employment contracts?
This question is an issue if you have two or more directors and there are no other staff working for the company. If two or more of the directors have an employment contract, there are auto enrolment duties which fall on the company.
You may think this is an easy question to answer – you have no written contract of employment. However this in itself is not sufficient to conclude that the two directors do not have contracts of employment. In employment law, a contract does not have to be in writing; it can be implied. If the directors carry out a wide range of activities for the company this may be regarded as evidence of a contract of employment.
On the other hand, one can argue that the activities performed by the directors on behalf of the company are performed in their capacity as directors.
In our view, for an employment contract to exist there has to be a legal arrangement between the director and the company beyond the arrangement which exists because the individual is an office holder. The extra arrangement must involve obligations on both sides – the obligation for the director to work for the company and be under its control and the obligation for the company to provide and pay for that work. It is up to the director and the company concerned to decide whether or not they wish to create a relationship of employer and employee. They do not have to do so.
In the absence of any explicit contract drawn up between the director and the company, then, in the context of director-shareholders running the business, it is reasonable to conclude there are no employment contracts.
We would stress this is our view. You will need to decide yourself whether employment contracts exist. The Pension Regulator is the body that monitors compliance with auto enrolment and issues penalties if employers do not comply. Its official position is that it is for the company to understand the contractual relationships that exist and apply the pension regulations accordingly.
One final point. If the company has received a letter from The Pension Regulator stating the staging date (the starting date for auto enrolment), it will be advisable to write to the regulator to confirm that the company has no auto enrolment requirement.
We enclose a form which can be used to provide such confirmation. We would recommend this is submitted shortly before your staging date if it is applicable to the company. We would not recommend that you submit it if your staging date is some time away as the circumstances of the company could change by the staging date. The point to note here is that a company needs to check on its staging date whether it has any enrolment duties.
Please contact us if you require any further information or advice.
Click here to download the template – Appendix