Who is a worker?

1. Neil EsslemontHead of industry liaison teamRebecca WoodleyIndustry liaison team December 2014 Who is a worker? The information we provide is for guidance only and should not be taken as a definitive interpretation of the law.

2. Scope Who is a worker? It will help if you have viewed part one of the Introduction to automatic enrolment module – Employer duties – or have the equivalent knowledge. This module will: tell you how to determine if a contractor is subject to this legislation explain who will need to be assessed describe the effect of secondments into or out of the UK, and explain the terminology used. You may wish to view part two of the Introduction to automatic enrolment – Getting started module and/or the Staging date module.

3. Contents Which workers are affected? Where do they work? Review of module What next?

4. Who is a worker?Which workers are affected?

5.  Which workers may be affected? • People could be subject to the automatic enrolment legislation if they are: • full or part-time • permanent, temporary or casual workers • on ‘zero hours’ contracts • a contractor (even if considered self employed for tax purposes) • agency staff • staff seconded overseas, and/or • home workers.

6. Worker contracts • Look carefully at any contractual arrangements and bear in mind that: • terms of employment can be implied, rather than explicitly stated • a contract does not have to be in writing, it can be a verbal contract • some staff are considered workers even when not carrying out work, if there is an enduring employment relationship (eg some ‘zero hours’ contracts), and • if a worker has more than one contract with an employer, the employer should make a reasonable judgement as to whether to aggregate or separately assess them.

7. Who is subject to this legislation? • A person is likely to be subject to the automatic enrolment legislationif they: • work or ordinarily work in the UK, • and • either work under a contract of employment (an employee) • or • are a personal services worker, meaning they • have a contract to perform work or services personally* • and are not undertaking the work as part of their own business. • * ie they cannot send a substitute or sub-contract the work, unless they are unable to perform the work themselves (eg due to sickness)   

8. Are they a personal services worker? • The employer needs to judge whether or not an individual (who is not a director) with a contract to perform work or services personallyis undertaking the work as part of their own business. • Does the employer: • have control over an individual’s method of work (eg hours worked)? • provide any employee benefits? • bear all the significant financial risks in carrying out the work (eg the worker is not financially responsible for their faulty work)? • provide what is required for the individual to carry out the work (eg tools)? •  If most or all of the above are true, then it would be reasonable to consider that they are not undertaking the work as part of their own business – and they are a personal services worker. • The list above is not exhaustive and an employer must take into account all relevant considerations and make a reasonable judgement.

9.  Who is excluded? Exclusions from automatic enrolment duties include: • some office-holders who are not considered workers, eg a non-executive director (but only for the activities they carry out as an office holder) • serving members of the military are exempt, and • a company with only one employee, if that employee is also a director of that company (but only for the work they carry out for that company).

10. Who is the worker’s employer? • For a worker who works under a contract of employment (an employee) or who is a personal services worker directly contracted to perform work for the company who pays them: •  the employer will be the legal entity named in the contract. • Otherwise: • for a worker who is supplied by an agent to a third party, to perform work personally, under a contract or arrangement between the agent and the third party, then: • the agent or third party will be the agency worker’s employer, depending on which is responsible for paying the worker • or, if it cannot be determined who is responsible for paying the worker, then whichever actually pays the worker will be considered as their employer.

11. Who is a worker?Where do they work?

12. Where do they work? • A worker would be subject to automatic enrolment if they: • wholly work in the UK* • unless: • they are seconded by a non-UK employer into the UK and considered to benotordinarily working in the UK • or • although they do not wholly work in the UK, they are ordinarilyworking in the UK. • *the Channel Isles and the Isle of Man are outside the UK

13. Are they wholly working in the UK? A worker would be considered to be wholly working in the UK: • if a worker’s contract specifies that the work is to be done in the UK, or • if they are an offshore worker and work in the territorial waters of the UK (or in the UK sector of the continental shelf – please see our employer’s detailed guides) and • there is no simultaneous employment relationship between the worker and a non-UK employer for the same work. • It does not matter whether or not the worker is a UK national. • It does not matter if they make occasional business trips outside the UK.

14. Who is seconded into the UK? • If a non-UK employer sends a worker on secondment to a UK organisation, the non-UK employer will need to consider whether the worker’s base remains outside the UK despite their secondment to the UK, so: • if the worker’s contract remains with the employer located outside the UK • and • there is an expectation on the part of the employer that the worker will return to work for their employer outside the UK at the end of their placement • then the worker is unlikely to be considered to be ordinarily working in the UK and therefore would not be subject to automatic enrolment.

15. Who is seconded outside the UK? • Individuals working on secondment to another company will usually remain a worker for the employer from which they are seconded. • If a UK-based employer makes a short term placement of a worker outside the UK, they will need to consider whether the worker’s base remains in the UK despite their placement overseas, so: • if there is an expectation on the part of the employer that the worker will resume working in the UK for the UK-based employer at the end of the placement, and • that worker would be, were it not for the placement, assessed as working or ordinarily working in the UK • then the worker is likely to be considered as ordinarily working in the UK and could be subject to automatic enrolment.

16. Workers not wholly working in the UK • If they are not seconded outside the UK, but are not wholly working in the UK (eg an airline pilot), they could still be considered as ordinarily working in the UK. • The primary issue to be considered is where the worker is based, so what does the employment contract specify and how does it work in practice: • Where does the worker begin and end their work? • Where is the worker’s headquarters? • Has their work a sufficiently strong connection to the UK? • Where is their private residence, or where is it intended to be? • What currency are they paid in and do they pay income tax and National Insurance contributions in the UK? • This list is not exhaustive, an employer must take into account all relevant considerations and make a reasonable judgement.

17. Where they work - examples The table below shows some of the various possible scenarios: * These are examples, but this will not always be true in every case – the employer must take into account all relevant considerations and make a reasonable judgement.

18. Review of the module

19. Is Eddie a worker? Eddie is a self employed graphic designer. He works regularly for a company, Acme Workshops Ltd. His role is unique. He designs (and, if necessary, prints on his own equipment) all the flyers and magazine ads. He also designs and updates their website and forum. Eddie is very important to Acme Workshops’ marketing strategy. It is a nightmare when Eddie is too busy working for other customers, because his contract with Acme does not permit him to send a replacement. Eddie works unsupervised and, generally, he works from home, but sometimes he works in the offices of Acme Workshops. Eddie invoices Acme Workshops at the end of each campaign design and guarantees the quality of his material.Question 1 - Should Acme Workshops consider Eddie to be their worker?

20.  Is Eddie a worker? Eddie is a self employed graphic designer. He works regularly for a company, Acme Workshops Ltd. His role is unique. He designs (and, if necessary, prints on his own equipment) all the flyers and magazine ads. He also designs and updates their website and forum. Eddie is very important to Acme Workshops’ marketing strategy. It is a nightmare when Eddie is too busy working for other customers, because his contract with Acme does not permit him to send a replacement. Eddie works unsupervised and, generally, he works from home, but sometimes he works in the offices of Acme Workshops. Eddie invoices Acme Workshops at the end of each campaign design and guarantees the quality of his material.Eddie cannot reasonably be considered a worker, as: i) he is not an employee ii) he sometimes uses his own equipment iii) he works unsupervised and iv) he guarantees the quality of his work

21. Is Georgina a worker? Georgina is a self employed IT professional who works full time for Acme Workshops Ltd. Georgina supports Acme Workshops’ in house payroll system and is very important to Acme Workshops and no one else has the expertise to do her work when she’s on holiday. Georgina works in Acme Workshops’ payroll team, alongside Acme Workshops’ own employees in their offices, but sometimes she is allowed to work from home. Georgina invoices Acme Workshops at the end of each month based on the number of days she has worked. Should Acme Workshops consider Georgina to be their worker?

22.  Is Georgina a worker? Georgina is a self employed IT professional who works full time for Acme Workshops Ltd. Georgina supports Acme Workshops’ in house payroll system and is very important to Acme Workshops and no one else has the expertise to do her work when she’s on holiday. Georgina works in Acme Workshops’ payroll team, alongside Acme Workshops’ own employees in their offices, but sometimes she is allowed to work from home. Georgina invoices Acme Workshops at the end of each month based on the number of days she has worked.Georgina can reasonably be considered a worker, because: • she is supervised by Acme (needs permission to work at home) • she works in their offices (uses their office equipment and supplies), and • she is paid a daily rate (the completed work is not guaranteed)

23. Question 1: A director of a company with two employees does not draw a salary, but only takes dividends. Is the director considered a worker? Answer: If a director is not drawing a salary, but is simply drawing the profits from the business that he or she has an ownership in, then the director would not be a worker (providing the director is not working under an employment contract or personal services contract). However, the two employees would be considered as workers. Question 2: A director of a company is the only employee of the company and she does earn a salary. Would the director be considered a worker? Answer: No, if an individual is a director of a company and the company has no other employees, that individual is not a worker by virtue of any office that they hold or contract of employment under which they work. The company is therefore not subject to the employer duties. Questions and answers

24. Question 3: If someone is a personal services worker, but is not on PAYE, how could an employer deal with this? Answer: It does not matter whether a person is paid through PAYE or not - if they are considered a worker they will need to be assessed and automatically enrolled if eligible. An employer could continue to pay them directly, without deducting tax and national insurance, but make a deduction for their pension contributions as and when appropriate. Alternatively, some employers have chosen to put these types of people onto their payroll system (marking them as non-tax payers), simply to ensure they are assessed by their payroll software. Questions and answers

25. Question 4: Could a person, living and working overseas, who has been seconded from a UK employer on a three year renewable contract, be subject to the automatic enrolment legislation? Answer: Yes, if the worker has the right of return to work in the UK for the seconding UK employer and is considered ordinarily working in the UK (even though they are currently living abroad). The seconding company retains responsibility for the worker and if they are subject to the automatic enrolment legislation would need to consider their total world-wide earnings to determine their qualifying earnings. Question 5: A person normally resident in Australia, has a one year UK work visa and has chosen to work in the UK on a temporary or fixed term employment contract, but intends to return home after a year. Would you consider them to be a worker? Answer: Yes. They are not seconded from an overseas employer and are wholly working in the UK. It does not matter that they are not a UK national or that they are not a permanent employee. Questions and answers

26. Question 6: Someone who is self-employed and VAT registered would always be considered to be a business in their own right and therefore not subject to assessment. True or false? Answer: False. VAT registration or an individual's tax status (eg self employed) does not rule out someone from being considered a worker. The employer needs to consider if the person could be considered a personal services worker or not and make a reasonable judgement taking all relevant factors into account. Question 7: Would a woman, wholly working in the UK, but on maternity leave, need to be assessed as a worker? Answer: Yes and her maternity pay would be included in the calculation of her qualifying earnings. Questions and answers

27. Who is a worker?What next?

28. Automatic enrolment Now Between now and staging At staging and beyond Record- keeping/Contributeto yourpensions Postponementand transitionalperiod Contractual versus Statutory enrolment Introductionto automaticenrolment Part 1: Employer duties Part 2:Getting started Who is a worker? Declaration of compliance (register) Assessmentand automaticenrolment Employee safeguards Joining/opting In Opting out Communicate to your workers Reviewingyour pensionschemes Know your staging date

29. Planning timeline - www.tpr.gov.uk/planner

30. Useful links Modules: Introduction to automatic enrolment, Staging dates and Who is a worker?www.tpr.gov.uk/help-clients Staging date tool:www.tpr.gov.uk/employers/tools/staging-date.aspx Planning tool:www.tpr.gov.uk/planner Lettertemplates for employers:www.tpr.gov.uk/employers/letter-templates-for-employers.aspx Information about declaration of compliance (registration): www.tpr.gov.uk/employers/automatic-enrolment-declaration.aspxwww.tpr.gov.uk/docs/automatic-enrolment-online-registration-checklist.pdf Ourdetailed guides for employers and pension professionals:www.tpr.gov.uk/pensions-reform/detailed-guidance.aspx

31. Useful links continued… More information about pensions and automatic enrolment: The Association of British Insurers:www.abi.org.uk/pensionproviders The National Association of Pension Funds:www.napf.co.uk National Employment Savings Trust:www.nestpensions.org.uk Independent Financial Advisers:www.unbiased.co.uk www.vouchedfor.co.uk The Pensions Regulator: www.tpr.gov.uk/docs/selecting-a-good-automatic-enrolment-scheme.pdf www.tpr.gov.uk/docs/introduction-code-13.pdf

32. We’d appreciate your feedback on this presentation https://www.surveymonkey.com/s/TPRBoxSetFeedback

33. We are here to help Contact us at:www.tpr.gov.uk/contact-us.aspx Subscribe to our news by email:www.tpr.gov.uk/subscribe.aspx Connect with us on LinkedIn:www.linkedin.com/groups?gid=2675456 Follow us on Twitter:https://twitter.com/TPRgovuk Thank you The information we provide is for guidance only and should not be taken as a definitive interpretation of the law.

34. Glossary

35. Automatic enrolment terms Automatic enrolment scheme – a qualifying pension scheme which can be used for automatic enrolment Eligible jobholder (EJH) – a worker who must be automatically enrolled into an automatic enrolment scheme Entitled worker (EW) – a worker who is entitled to join a pension scheme Jobholder – an eligible jobholder or non-eligible jobholder Non-eligible jobholder (NEJ) – a worker who has the right to opt in to an automatic enrolment scheme Office holder – a person who has been appointed to a position by a company or organisation, but doesn’t have a contract or receive regular payment Personal services worker – an individual who has contracted to perform work or services personally (this is sometimes referred to as a ‘contract of services’)

36. Automatic enrolment terms continued… • Postponement – an optional mechanism to delay the automatic enrolment duties for workers • Qualifying earnings – the earnings which determine a worker’s category (EJH, NEJ or EW) and (as a band of earnings) may be used as the definition of pensionable earnings • Qualifying scheme – a pension scheme which meets the minimum criteria and so existing members who are eligible jobholders will not need to be automatic enrolled • Staging date – the start date of an employer’s automatic enrolment duties • Worker – an individual who works under a contract of employment (or a personal services worker)

37. Other terms Active member – a person who is currently a member of the pension scheme (and would normally be contributing to the scheme) Defined benefit (DB) – a pension scheme where the benefits payable on retirement are known (eg ‘final salary’, where the retirement income is based on the member’s salary) Defined contribution (DC) – a pension scheme where the contributions are known, but the benefits are not guaranteed and are likely to depend on the fund value at retirement Deferred member – a person who is no longer an active member of the pension scheme, but has accrued some benefits (payable on retirement or could be transferred)

38. Other terms continued… • Hybrid – a pension scheme with a mixture of DB and DC components • PAYE (Pay As You Earn) – HM Revenue & Customs’ (HMRC) tax payment mechanism • PAYE scheme – HMRC’s record for an employer who employs a worker or workers for whom PAYE taxable income is payable • PAYE scheme reference number – a number issued by HMRC to identify each employer’s PAYE scheme(s) • Pensionable earnings – the earnings on which pension contributions are due