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Employed or self-employed?

15th Feb 2016

Steve BriceIf you employ freelancers or contractors you may have to enrol them into a Workplace Pension scheme, explains Steve Brice, Business Development Manager for LP Auto Enrolment Services.

The law on workplace pensions has changed.  Every employer with at least one member of staff has new duties, including enrolling those workers who are eligible into a workplace pension scheme and contributing towards it.  But do you know if your workers are employed or self-employed?

This is called ‘automatic enrolment’ because it is automatic for employees – they don’t have to do anything to be enrolled into a pension scheme.

While this seems relatively straightforward for employees, the ‘automatic enrolment’ process for employers is certainly not.  There are many challenges that employers will need to confront when dealing with auto enrolment, none more so than defining a worker status.

Although it may seem obvious whether someone is an employee or not, the answer is not always that clear-cut, and even the courts sometimes have difficulty in figuring it out.  This issue covers many important aspects of employment law, but we will concentrate specifically on how it affects auto enrolment.

A person is generally classed as a ‘worker’ if:

  • they have a contract or other arrangement, written or otherwise, to do work or services personally for a reward
  • their reward is for money or a benefit in kind
  • they only have a limited right to send someone else to do the work (sub-contract)
  • they have to turn up for work even if they don’t want to
  • their employer must have work for them to do for as long as the contract/arrangement lasts
  • they aren’t doing the work as part of their own limited company in an arrangement where the ‘employer’ is actually a customer or client

Assessing freelancers and contractors

It is important to understand that the Department for Work & Pensions (DWP) definition of a worker for assessment shown above is NOT the same as the HMRC definition of a worker for tax.  This means that someone who is self-employed for the HMRC may still need to be assessed and enrolled into your workplace pension scheme.  So if you have freelancers or contractors working for you they need to be assessed.

Auto enrolment duties could apply if for example they:

  • are provided with tools to do the job rather than using their own
  • are provided with a vehicle in order to complete the task specified and do not use their own
  • represent you and your business name rather than their own when completing the agreed project/task
  • operate out of your premises rather than their own in order to complete the project/task
  • if an error is made it is corrected at your cost

This list is by no means exhaustive but if just one, some or all of these apply then your worker will need to be assessed and may need to be enrolled into your scheme.

It’s better to be safe than sorry and we suggest that you seek legal advice when you assess your workers.  This also applies to foreign workers ordinarily at work in the UK.

The Pension Regulator (TPR) is of course the body that sets out the rules for auto enrolment.  At a presentation I attended recently, when asked about this specific area, TPR said they apply the philosophy of:

“If it looks like a duck, quacks like a duck and swims like a duck…it’s probably a duck”

This may seem comical but does make the point that if you are looking at this and thinking that if someone that ‘works’ for you could be perceived by your clients and customers as a member of your staff, then maybe for the purposes of automatic enrolment they are a worker and should be assessed and enrolled where appropriate?

Next time, we’ll look at how to assess your staff.

LP Auto Enrolment Solutions Ltd are happy to discuss this or any other workplace pension issue further.  Give us a call on 0117 370 9770.LP auto enrolment