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Pension Auto Enrolment and first worker

Pension Auto Enrolment and first worker

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A company has two directors, one with annual remuneration set at £8,880 and the other at £12,000.

They have taken on a first employee so auto enrolment obligations have been triggered.

My understanding is that the company has the choice of whether or not to enrol any director although they can opt in - correct?

Does the taking on of the new employee mean that the company must comminucate with the directors again setting out their option to opt in? 

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By David Ex
20th May 2022 20:06

I directed you to (the) TPR site 3 days ago and would guess you’ll find the answer there.

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By Hugo Fair
20th May 2022 20:59

Whether or not to enrol any director (or employee) is *never* simply a choice for the company (aka employer).
If the circumstances/rules require it then the employee must be auto-enrolled (even if he/she subsequently opts out); and if, despite not being auto-enrolled, the employee makes a valid opt-in request then the employer must comply.

Those are, of necessity, a simplified version of the main concepts. As David says, the TPR site has a lot more information - and as an organisation they're usually happy to explain the relevance if you ask them.

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Replying to Hugo Fair:
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By CWservices6064
21st May 2022 12:20

Thanks for the reply.

TPR says 'In the case of directors who are classed as workers, provided it has no other non-director staff, the organisation can choose whether to put them in a pension scheme or not. If the organisation chooses not to, it has to complete a declaration of compliance saying that it has not put any workers into a scheme.'

It also says 'When is a director regarded as a worker?
A director is only a worker for automatic enrolment purposes if:

they have a contract of employment with the organisation
at least one other person (who can be another director) also has a contract of employment with the organisation
A contract of employment does not have to be written down anywhere, it could also be either a verbal or implied contract.

However, if there is no written contract of employment, or other evidence of an intention to create an employer/worker relationship between the company and a director or directors, we will not seek to argue that an implied contract of employment exists.'

It goes on to say 'Directors without an employment contract
If a director does not have an employment contract, they cannot be a worker and are therefore always exempt from automatic enrolment.

This means that an organisation with one or more directors who do not have contracts of employment is not an employer if it does not have any staff other than the director(s).

The company will have no automatic enrolment duties and does not need to complete a declaration of compliance. In this case they should let us know that they're not an employer.

If the organisation does have other staff, it has duties in respect of those other staff and is an employer. If none of the other staff meet the age and earnings criteria for automatic enrolment, the company still has to complete a declaration of compliance.

If the company's circumstances change so that automatic enrolment duties apply, they'll need to inform us of this as soon as possible. For example if they took on a member of staff other than a director, or if at least two directors started working for them under contracts of employment.'

I read this as there are duties to any other staff but not in relation to the directors unless they are a 'worker' i.e. have a contract.

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Replying to CWservices6064:
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By Hugo Fair
21st May 2022 13:58

Well I did say that my summary was "a simplified version of the main concepts"!
So well done for jumping into research/reading mode.

However the lengthy extract that you quote reads to me as though it is describing the situation at the initial staging - and solely in terms of whether or not a DoC is required. Is that the case, or am I reading too much between the lines?
If so, it doesn't seem relevant to your situation as you passed that point a while ago ... other than the final sentence which says, in your scenario, you don't need to submit a new DoC but do need to inform TPR that AE duties now apply to your organisation.

EDIT: However ...
as per your response below to DKB-Sheffield my reading of the final extract that you've quoted indicates that your ".. first step (should) be to determine whether the director falls within the definition of a worker. It is only if they do that this exception to the automatic enrolment and automatic re-enrolment duties applies."

There are a lot of refs to sections/paras within other section/paras for when you attempt to tease out the precise scenario here ... but in terms of your initial query (whether the organisation becoming subject to AE duties has any impact on its duties for a director not previously deemed to be entitled to AE?) is I feel a question best raised direct with TPR.

That's not to take away from your research (which is always a useful part of learning) ... but relying on the opinion of a public forum stranger (however well-intentioned) is not going to ensure that you comply with TPR's expectations.

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By DKB-Sheffield
20th May 2022 21:43

Is this the first time you have dealt with pensions? I'm sure it's not but, 2 questions may suggest otherwise.

If it is however, I highly recommend you check out the guidance specific to advisers* here...

https://www.thepensionsregulator.gov.uk/en/business-advisers

You should also check out the employer and adviser sections of the pension provider advice (e.g. NEST).

As you've asked 2 questions on pensions in 3 days, a good bit of reading (and potentially some CPD) would certainly seem beneficial.

* Note to self... I've just realised I've been spelling adviser the US way for years! Not good for a tax adviser!

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Replying to DKB-Sheffield:
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By CWservices6064
21st May 2022 12:43

Thanks for the reply.

I was really just checking. I had thought that taking on a a first 'worker' triggered auto enrolment duties for everyone on the payroll including directors with no contract of employment i.e. enrol as usual and opt out if appropriate.

This does not appear to be the case:

https://www.thepensionsregulator.gov.uk/en/document-library/automatic-en...

31. 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. Again where the company has duties in relation to any director, these will be modified as set out in paragraphs 107 to 109 below.

Directors
104. This exception applies to a worker who holds the office of director with the employer. Paragraph 32 explains what it means to hold office as a director.

105. Where this exception applies, the employer can choose whether to apply the automatic enrolment duty or automatic re-enrolment duty to that worker in the event either duty is triggered but is not required to. All the other duties and safeguards continue to apply as usual.

106. Employers should note the interaction with the exemption from the definition of worker described at paragraphs 29 to 32. Their first step will be to determine whether the director falls within the definition of a worker. It is only if they do that this exception to the automatic enrolment and automatic re-enrolment duties applies.

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