National Minimum Wage issue on Directors joining a Workplace Pension

National Minimum Wage issue on Directors...

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A director is not classed as a "Worker" for Workplace Pension purposes if he does not have a contract of employment.

The Pension Regulator guidance states "Where the company takes on one or more workers in addition to the directors, the company will have employer duties in relation to those workers, but will not have duties in relation to any of the directors unless the directors have contracts of employment with the company."

However, if a director wishes to participate in the company's Workplace Pension (there are other eligible employees for this particular client)  then surely he must have a contract of employment to do so, otherwise he cannot be classed as a jobholder and be eligible to join?

So if the director must have an employment contract to join the Workplace Pension does this raise National Minimum Wage issues?

The director is currently on a salary of £8,060 pa which would make him a Non-Eligible Jobholder and give him the right to join, with employer contributions, however on this salary he is clearly under the NMW rates.

Am I missing something here or could this potentially cause problems for clients if they were unlucky enough to get a HMRC enquiry?

Replies (6)

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By AccountingWebTemp
19th May 2016 15:06

I now have the definitive answer if anyone is interested?

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Replying to AccountingWebTemp:
paddle steamer
By DJKL
20th May 2016 09:41

AccountingWebTemp wrote:

I now have the definitive answer if anyone is interested?

In the words of the Euro referendum anthem below, you surely cannot just leave us dangling.

You need to open the gold envelope," and the winner is................"

"It's always tease, tease, tease
You're happy when I'm on my knees
One day it's fine and next it's black
So if you want me off your back
Well, come on and let me know"

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Replying to DJKL:
avatar
By AccountingWebTemp
20th May 2016 12:14

DJKL wrote:
You need to open the gold envelope," and the winner is................"

...... pause for effect .....

.......

The Pension Regulator.

Having no luck elsewhere finding an answer I telephoned The Pension Regulator themselves (don't know why I didn't do that originally!!) and their answer was that a director without an employment contract falls outside of auto-enrolment, but is free to join the scheme if they want to.

So an employment contract is not required to join the scheme, but with a contract they are caught by the auto-enrolment rules.

Simple really, no contract required and therefore no NMW problems, and the answer we wanted to hear.

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Replying to AccountingWebTemp:
paddle steamer
By DJKL
20th May 2016 12:29

AccountingWebTemp wrote:

DJKL wrote: You need to open the gold envelope," and the winner is................"

...... pause for effect .....

.......

The Pension Regulator.

Having no luck elsewhere finding an answer I telephoned The Pension Regulator themselves (don't know why I didn't do that originally!!) and their answer was that a director without an employment contract falls outside of auto-enrolment, but is free to join the scheme if they want to.

So an employment contract is not required to join the scheme, but with a contract they are caught by the auto-enrolment rules.

Simple really, no contract required and therefore no NMW problems, and the answer we wanted to hear.

The rules do make sense.

However if he/she is only on £8k ,and the scheme is set to only pay x percent above whatever threshold has been set for the staff, it does beg the question why would the director bother with the AE scheme, appears a clumsy way to have flexibility and if contributions at same rates as staff they will be negligible?

If I were the director I think I would just set up a PP scheme to take employer contributions, regular and single payment. I appreciate the charging structure might be different and more expensive, but certainly a SIPP gives greater flexibility and there are some pretty low cost stocks/shares/funds SIPPS which will give greater investment choices than most AE schemes.

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Replying to DJKL:
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By AccountingWebTemp
20th May 2016 13:09

DJKL wrote:

The rules do make sense.

However if he/she is only on £8k ,and the scheme is set to only pay x percent above whatever threshold has been set for the staff, it does beg the question why would the director bother with the AE scheme, appears a clumsy way to have flexibility and if contributions at same rates as staff they will be negligible?

The director, or any other employee for that matter, can decide to pay additional voluntary contributions on top of the minimum percentage.

The client in question wants to pay £100 per month voluntary contribution, which can be matched by a company contribution as long as it does not fall foul of Corp Tax rules (wholly and exclusively for the purposes of the trade etc), but on £100 per month they should be safe.

We already run other clients' payroll where employees pay additional contributions, but this is the first case where a director is involved hence my original concerns.

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Melchett
By thestudyman
20th May 2016 01:32

Of course, posting the answer would be most appreciated incase there are others facing the same dilemma.

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