How to classify a worker under Automatic Enrolment legislation

Since the introduction of Auto Enrolment (AE) in 2012, millions of people have been enrolled into a workplace pension scheme.

Smaller firms, often referred to as micro employers, are now being impacted and face the task of auto enrolling any eligible staff they employ. The legislation applies to those who are employed and classed as ‘workers’ but this does not apply to all staff. Instead, there are different categories of workers determined by age and earnings.

It’s therefore important that employers are clear on the criteria used to determine whether someone is considered to be a worker and what category of worker they fall into, which we cover here in our latest article.

Crucially, if you have at least one worker, regardless of their age or earnings, you must declare your compliance with The Pensions Regulator (TPR). This should be done online and within five months of your staging date: www.tpr.gov.uk/dec-compliance.

TPR defines 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.

It is worth noting that a contract does not have to be in writing and can be a verbal arrangement.

Once you have determined your workers, you need to assess which category of worker they fall into as per the following table:

The earnings thresholds are detailed below and have been taken from TPR website.

All eligible jobholders must be automatically enrolled and payments made into a qualifying pension scheme, unless they decide to opt out.

Non eligible jobholders don’t have to be automatically enrolled into a workplace pension scheme, but if they choose to opt in payments must also be made by the employer.

For the final category, entitled workers are entitled to join a pension scheme but payments don’t need to be made by the employer.

There are certain scenarios where an employer would be excluded from AE duties. The following is a list of the only exceptions as stated by TPR on page 22 of this document: http://www.thepensionsregulator.gov.uk/docs/detailed-guidance-1.pdf and which we’ve highlighted below:

  • Worker who has opted out or ceased active membership of a qualifying scheme
  • Worker who’s given notice or been given notice of the end of their employment
  • Worker where the employer has reasonable grounds to believe the worker is protected from tax charges on their pension savings under HMRC’s primary, enhanced, fixed or individual protection requirements
  • Worker who holds the office of a director of the employer
  • Worker who is a member (partner) of a Limited Liability partnership (LLP) and is not treated for income tax purposes as being employed by that LLP under section 863A of the Income Tax (Trading and other Income) Act 2005
  • Worker who has been paid a winding up lump sum payment whilst in the employment of the employer, and during the 12 month period that started on the date the payment was made and the worker i. ceased employment with the employer after the payment has been paid and ii. was subsequently re-employed by the same employer
  • Worker who meets the definition of a ‘qualifying person’ for the purposes of separate UK legislation on occupational pension schemes and cross-border activities within the European Union.

View our Key Facts guide to Auto Enrolment here.  If you need help fulfilling your auto enrolment duties, we can help. Contact our Financial Planning Team on 0808 144 5575.

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