19 August 2011 - Post by:Helen Powell
When is a worker not a worker? Or perhaps more importantly, when is a contractor an employee so far as auto-enrolment into pension saving is concerned? It’s a question UK employers are going to have to get to grips with over the next few months: under the new auto-enrolment regime, they will be required to enrol all their qualifying workers (known as ‘eligible jobholders’) into pension saving meeting minimum quality standards, and make contributions on their behalf – but who exactly must be enrolled? In the modern employment environment, with casual and zero-hours staff, temporary and agency workers and independent contractors all playing a part in the flexible workforce, which workers have the right to be enrolled into a pension scheme?
The answer to this may be trickier than you think. The auto-enrolment obligation applies to workers who work or ordinarily work in Great Britain, and who meet certain age and pay criteria. It’s not limited to workers with an employment contract but can cover a range of people you might not think of as employees, including some contractors and agency workers. Casual staff and zero hours workers are likely to be covered, and you may have to aggregate earnings for workers with multiple contracts if in practice there is a single employment relationship. You need to assess your workforce looking at individual circumstances – even if an individual is not taxed as an employee, he or she may still be a worker under the auto-enrolment regime. There is no definition of what ‘ordinarily working in Great Britain’ means, so you may also need legal advice in relation to internationally mobile workers.
A key first step for employers is to audit their workforce so they know which workers will be eligible for auto-enrolment and can then gauge the cost of different options for future pension provision. A recent ruling from the Supreme Court* makes clear that an individual’s legal status doesn’t just depend on the wording of the contract describing how they work – he or she may be ‘a worker’ even if he or she is not paid via PAYE and is expressly stated to be a self-employed independent contractor.
The case itself concerned a group of 20 car valets who claimed to be workers and therefore eligible for the national minimum wage. The Supreme Court held that the valets were employees in all but name, despite multiple assertions in their contracts that they were self-employed contractors – the court said these statements ‘bore no practical relation to the reality of the relationship’. The valets had no say in the terms on which they performed work, the contracts being devised entirely by the company, which also unilaterally determined (and could increase or reduce) rates of pay. The contracts had been amended to allow substitution of workers and the right to refuse work, but the court held that these were ‘unrealistic possibilities that were not truly in the contemplation of the parties’.
The case is an important reminder to employers, as they make preparations for auto-enrolment, to review the status of any apparent contractors on a case-by-case basis, to assess whether the contract reflects the reality of the position. Employers who fail to do so may find that they have failed to auto-enrol all eligible workers and could be subject to compliance action by the Pensions Regulator.
Helen Powell is a senior professional support lawyer at Allen & Overy LLP.