Auto enrolment requires employers, once they are in the scheme, to automatically enroll workers into a qualifying pension scheme and make contributions to that scheme for those workers. The workers affected are people aged between 17 and 74 who earned at least £5,824 in the year 2015-2016.
There is a whole array of legislation that surrounds auto enrolment, but the core of the principal is based around the simple notion that more people need to be funding for their retirement. This makes auto enrolment seem simple, but where self-employed are concerned, it’s not quite so simple. Thanks to the success of auto enrolment, a significant number of people in the UK are now contributing to a pension scheme who previously weren’t and this has given rise to questions that are being asked about the self-employed.
With an estimated 4 million self-employed workers in the UK, this sector of the population is considerable in size. What’s more, it is estimated that a only disappointing (slightly over) 1 in 5 self employed people paid into a pension scheme in 2012-2013, which means that the size of this retirement issue multiplies. Against this backdrop, it’s not surprising that questions are being raised about where the self-employed fall in the auto enrolment arrangements.
With a significant number of people in the UK operating on a contract basis these days, there is a somewhat hazy line between what constitutes a ‘worker’ for auto enrolment purposes and what makes someone completely self-employed. Many employers to date have relied on the tax status of people who work with/for them to determine into which category they fall, but it transpires that this simple view is insufficient. Technically speaking an individual that is deemed by HMRC to be self employed for tax purposes could still in fact be a ‘worker’ under pensions legislation.
The key to differentiating between the two seems to be the distinction between a ‘contract for services’ and a ‘contract of service’. In effect, someone who is working on a self-employed basis, but under a personal contract OF service may well be deemed as a worker and therefore eligible for inclusion within the auto enrolment legislation. All of this said, once again, this factor alone does not appear to be sufficient to determine whether a person is of worker status or not.
So what can you do to check to see if you have included everyone who should be included in auto enrolment?
Here are three key areas that should help:
- Has the person in question undertaken a personal contract to perform work or services for you? While this alone is insufficient to point 100% to worker status, this situation would generally deem someone to be a ‘worker’ and therefore qualify for inclusion in auto enrolment.
- If someone has a business undertaking with you whereby they are required to report to you if they plan not to come to work or even if they operate using your premises or equipment, they more than likely qualify for worker status.
- If there is mutuality of obligation, then the person is almost certainly of worker status.
So where might you go from here? The first port of call is to identify those people who operate within your business along this hazy line of self-employed and worker status and then to assess their individual situations in detail to ascertain if they are in fact self-employed or a worker.
If you’d like help to demystify the self-employed/worker status of anyone who provides services within your business, why not get in touch? We have a team of experts on hand to help make matters clearer and to guide you on the best way forward.