Pensions insight
Director exemptions
The Pensions Regulator explains how automatic enrolment duties apply to directors, which is the cause of one of the most frequent questions received
I n some cases, directors may be exempt, depending on whether they have an employment contract and who else is working for the organisation. The point to note is that only organisations that employ workers have automatic enrolment duties. This means the main question to consider is whether a director should be regarded as a worker for automatic enrolment purposes. ● What is the definition of a director? – In the case of a company, it means a director who is formally appointed under the Companies Act 2006, and also anyone acting as a director in the sense of having a decision-making role in the corporate governance of the company, even if they have not been formally appointed under that Act. In the case of corporate bodies other than companies, it means anyone holding an office of director created by the establishing legislation or Royal Charter. ● 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. ● Directors without an employment contract – If a director does not have an employment contract, they are not regarded as a worker and are therefore exempt from automatic enrolment. This means that an organisation with one or more directors who do not have a contract of employment is not an employer if it does not have any staff other than the director(s). If the company’s circumstances change so that automatic enrolment duties apply, they’ll need to inform The Pensions
Regulator 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. ● Directors with an employment contract where there are no other members of staff – Even if a director does have a contract of employment, they are not classed as a worker if they are the only person in the company with an employment contract. A one-person company consisting of a single director is never considered an employer under automatic enrolment, whether the director has an employment contract or not. This would be true even if there were other members of staff, such as other directors, as long as none of the other staff were working under employment contracts. (Remember that contracts can be verbal or implied as well as in writing.) Where a company has multiple directors and no other staff – and at least two of the directors have employment contracts – all the directors with employment contracts will be workers and subject to the automatic enrolment duties – and all those directors without employment contracts will not be. ● Director with an employment contract who is not the only member of staff – A director who has a contract of employment and is not the only person working for the company under an employment contract is not exempt. Depending on their age and earnings, they may qualify for automatic enrolment and the company will have the option to put them into a pension. If the company chooses not to automatically enrol a director who is or becomes eligible for automatic enrolment, the director will retain the right to opt in or join a pension. If such an organisation decides it does not wish to enrol any employed director
who is eligible for automatic enrolment, and it has no other eligible staff, then it does not need to set up a pension scheme – but will need to make a declaration of compliance. ● Organisations whose staff are exempt – If the organisation has no workers, because all their staff are exempt, they will not need to complete a declaration of compliance. If the organisation has received a letter about automatic enrolment from The Pensions Regulator, then it’s important they tell them they are not an employer. n Summary of actions ● Directors regarded as workers – 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. ● Directors not regarded as workers – The company will have no automatic enrolment duties and does not need to complete a declaration of compliance. The company should tell The Pensions Regulator they are not an employer by completing an online form especially for this (link below). Links for more information ● Employment contracts – http://bit. ly/2pGZUlg ● Let TPR know if your client is not an
employer – http://bit.ly/2qE1dyS ● Director exemptions – http://bit. ly/2p4DxCq
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Issue 31 | June 2017
| Professional in Payroll, Pensions and Reward |
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