More workers eligible for automatic enrolment as October deadline approaches
The main automatic enrolment duties are being phased in from 1 October 2012, starting with the largest employers who will be required to:
- automatically enrol 'eligible jobholders' (and 'non-eligible jobholders' who opt-in) into an automatic enrolment scheme;
- pay minimum employer contributions or provide a minimum level of benefits;
- provide information to workers about their new rights; and
- re-enrol eligible workers who opt-out approximately every three years.
For further information on automatic enrolment, please see our Guide for Employers.
A fundamental part of assessing which workers are eligible for automatic enrolment is identifying whether someone is a 'worker'. Recent case law, including a Court of Appeal decision, has substantially developed the appropriate test for 'worker' status. As such, employers should ensure that they have taken account of these developments as part of their preparations for automatic enrolment. Incorrectly identifying individuals as self-employed, and thereby excluding them from automatic enrolment, risks enforcement action by the Pensions Regulator, including fines.
Who is a 'worker' for automatic enrolment purposes?
A 'worker' for automatic enrolment purposes, is an individual who has entered into or works under:
- a contract of employment (as an employee), or
- any other contract under which the individual undertakes to do work or perform services personally for another party to the contract (and that other party is not a client or customer of any profession or business undertaking carried on by the individual).
It is this latter definition that has been the subject of recent case law. Typically, the difficulty in practice with this definition is where to draw the line between a genuinely self-employed contractor (who is not a worker) and someone who has contracted to perform work or services personally (who is a worker).
Recent case law on 'worker' status
In The Hospital Medical Group Ltd v Westwood the Court of Appeal upheld a tribunal's decision that a GP, providing part-time surgical services to a private clinic as an independent contractor, was a 'worker'. When considering whether The Hospital Medical Group was a client or customer of the GP, the Court confirmed that a key indicator was whether he was marketing his services to the public at large or was recruited as an integral part of the clinic's business. In finding the latter applied on the facts, it is now clearer that an individual is likely to be a 'worker' unless they promote themselves and work independently, notwithstanding whether they operate in business on their own account.
Another case has thrown into doubt the status of members of a limited liability partnership (LLP). In Bates van Winkelhof v Clyde & Co LLP and another the EAT held that a former member of a law firm satisfied all the necessary conditions for 'worker' status. In reaching its decision the EAT adopted a similar approach to the Court in Westwood, finding that the partnership was not a client or customer of the partner concerned. Key indicators in favour of 'worker' status were that the claimant formed an integral part of the partnership and that her partnership agreement precluded her from offering her services to the world at large. However, the EAT suggested that 'worker' status may not apply to full equity partners. As automatic enrolment is primarily aimed at providing pensions for lower paid workers, this decision has produced a surprise result and must cause partnerships to review the way they address automatic enrolment amongst their more senior ranks.
Both cases may be subject to appeal, meaning that the issue of 'worker' status may be subject to further twists. Until then, employers should scrutinise how they are assessing worker eligibility for automatic enrolment and double-check those excluded on self-employment grounds in the light of these recent decisions.
There is helpful guidance from the Pensions Regulator on worker status. It lists some indicators which support 'worker' status and provides specific guidance on the eligibility of certain classes of individual including officer holders, agency workers, secondees, volunteers and members of the armed forces.