LLP members may be "workers" for the purposes of automatic enrolment
Clyde & Co LLP v Bates van Winkelhof
The recent case of Clyde & Co LLP v Bates van Winkelholf has highlighted a tension between the status of limited liability partnership ("LLP") members under the LLP legislation [Limited Liability Partnerships Act 2000] and the extent to which they can benefit from rights available to individuals with worker status in the context of employment law. In the Clyde & Co case the Supreme Court considered the position of LLP members in the context of whistleblowing and found that they could be "workers", as defined in the relevant legislation.
The definition of "worker" that the Supreme Court considered in the Clyde & Co case is very similar to the definition in the automatic enrolment legislation. This means that it is likely that LLP members could, depending on the circumstances, be treated as workers for the purposes of auto enrolment. Whether or not an LLP member is a worker will depend on the extent to which the LLP member must personally perform services for or as part of the LLP, rather than on their own account.
However, the classification of an LLP member as a "worker" for automatic enrolment purposes does not necessarily mean that they will need to be automatically enrolled. He or she would also need to have "qualifying earnings" of at least £10,000 a year. "Earnings" include salary, wages, commission, bonus, overtime and certain statutory pay, but this definition may well not cover the remuneration of LLP members, which is usually some form of profit share. Depending on the circumstances, this may not fall within the definition of "earnings" meaning that, without qualifying earnings, there is no obligation to auto enrol LLP members.
Another issue to be aware of with LLP members being automatically enrolled is that they may be affected by the lifetime allowance for tax efficient pension saving. Some with large pension savings will have applied for and obtained tax protection which would be lost if further benefits were accrued. Losing tax protection can lead to very significant tax charges arising. There are a number of different types of tax protection available but the general position is that an employee or worker with tax protection who is automatically enrolled will need to opt out of scheme membership within one month. If the employee or worker does this, he or she is treated as never having joined the scheme and so will not lose tax protection.
LLPs will need to consider the treatment of their members in light of the Clyde & Co case, and the position for automatic enrolment should form part of their assessment.