Automatic enrolment exemption for workplace pensions occurs because some staff do not need to be put in a pension scheme. Although auto-enrolment to workplace pensions makes it compulsory for all employers to provide a workplace pension, an employer with exempt staff will have no auto-enrolment duties.
Who is exempt?
For a company, the exemption applies if the only people working for it are:
- A sole director;
- Several directors, none of whom has an employment contract; or
- Several directors, only one of whom has an employment contract.
Automatic enrolment will apply if more than one director has an employment contract. In that case, the company will owe auto-enrolment duties to only the directors who have employment contracts.
A director is a person formally appointed under the Companies Act, 2006.
In case of an LLP or partnership, case laws define a partner to be a worker of the partnership. A partner may receive a regular salary and be entitled to some employment rights. However, such status is disregarded by HMRC, and therefore the LLP or partnership is exempt from auto-enrolment duties.
What about other office holders?
The exemption does not apply to other office holders such as the company secretary, trustees or non-executive directors. If they have a contract of employment and/or receive a salary, the company will be covered by automatic enrolment duties.
What about directors on payroll?
The guidance from the Pensions Regulator specifies that a contract of employment can be implied and need not be written. If a company operates a PAYE scheme and the directors receive a regular salary, which may be below the earnings threshold, an employer-employee relationship exists and therefore auto-enrolment duties apply.
In other words, if more than one director in a ‘director only company’ receives a ‘salary’, the company will have auto-enrolment duties towards all directors receiving a salary.
What if the company also employs low paid employees?
The earnings trigger for auto-employment is £10,000 per annum.
Apart from directors, if the company only employs staff that do not meet the age or earnings criteria, then it does not need to auto-enroll anyone. However, it will still be liable to:
- Operate a workplace pension scheme
- Provide all necessary information to its staff to opt or join in the scheme
- Complete the declaration of compliance every three years.
What if both directors in a company are a married couple or civil partners?
Marriage or civil partnership has no effect on the duties of the employer, which is the company. The company will be exempt only if:
- The only staff employed by it are the married couple/ civil partners
- Only one or none of them receives salary
What to do if you are exempt?
You do not need to apply for the automatic enrolment exemption unless you receive a letter from The Pensions Regulator (TPR) informing you of your staging date. In such a case, you must fill in the online form at the Pensions regulator site and inform them that you are not an employer.
Please ensure you have taken expert advice before completing the form, because there are penalties for non-compliance. If the circumstances change at a later stage, the Pensions Regulator should be informed as soon as possible.
As a fully qualified tax adviser and accountant and with an impressive history in the corporate environment; Sonal brings significant experience and expertise to RightCue Tax Advisers, where she has the role of Managing Partner. If you would like further advice on any of the above, please contact Sonal on 01256 406601 or [email protected].