Last month I mentioned that we were awaiting some guidance from The Pensions Regulator (TPR) regarding the recent case of Clyde & Co v Bates van Winklehof.

The case was not about Auto-Enrolment (AE) as such, yet there are implications for any LLP’s that have already, or are about to, undertake compliance with their AE duties. The principle point here is that a partner of an LLP can be considered a “worker” under Auto-Enrolment requirements.

But, as I say, we were awaiting more detail on what this practically meant for those LLP’s who are concerned about this ruling. I have now received an update from TPR (the full text is shown later for completeness).

For those that don’t have time to read through the full text now, what are the stand out points to be aware of?

My potted summary (which may be subject to change as more detail becomes known) is as follows:

• An LLP should assume that LLP partners could be workers for AE purposes.
• The LLP will need to therefore assess partners to see if they are workers for AE purposes.
• If they are deemed a worker, then AE duties must be applied.
• This ruling will apply retrospectively. LLP’s that have already passed their staging date - and successfully complied with the AE duties as they were known at the time – may have to revisit this to ensure that LLP partners are assessed and/or enrolled from the date that the duty first applied to each partner (often the Staging Date). This may include backdating of contributions.
• The partner can still “opt-out” if they wish to.
• Any returns already made to TPR re Auto-Enrolment compliance will not need to be adjusted to reflect the retrospective treatment of these partners, but future returns must include these individuals.

So this represents yet another change in the Auto-Enrolment legislative framework – and given that this ruling is potentially retrospective for some LLP’s - something that may well require immediate attention.

I hope this helps. In the meantime, full TPR text is below.

Best regards

Steve

TPR text below (apologies for format issues in this section)…

“Background: LLPs

 

• On Wednesday 22 May 2014 the Supreme Court ruled in Clyde & Co v Bates van Winklehof that a partner of Limited Liability Partnership (LLP) was a ‘worker’ under the Employment Rights Act 1996 (the ERA). The Court made no distinction between ‘equity partners’ or ‘salaried partners’.

• Prior to this ruling, previous case law under the ERA said that a partner of an LLP was not considered a worker under the ERA.

• The Court noted that the same definition is used in other legislation, most notably in relation to the national minimum wage, working time and part time working.

• Whilst the Court did not mention the automatic enrolment legislation, the definition of ‘worker’ under the ERA is very similar to the definition of worker in the Pensions Act 2008 for automatic enrolment purposes. We have been asked by a number of LLPs for our view on the implications of the Supreme Court’s ruling for automatic enrolment and set out our view below:

Assessing a ‘worker’ under the Pensions Act 2008

• Given the similarity in the definition of worker in the ERA and the Pensions Act 2008, the Regulator’s view is that an LLP should assume that the Supreme Court’s decision is equally applicable to the Pensions Act 2008 for automatic enrolment purposes.

• The effect of this is not that every partner of an LLP is necessarily a ‘worker’ for automatic enrolment purposes, rather that they could be a ‘worker’ for automatic enrolment.

• The LLP will now need to assess each of their partners against the definition of worker in the Pensions Act to determine whether the partner is a worker or is self-employed for automatic enrolment purposes, having regard to the matters mentioned by the Supreme Court.

• These are:

- Integration within the organisation

- Dependence/subordination

- Exclusivity (i.e. could the individual provide services to anyone else)

The Court emphasised that there was no single factor that was determinative of worker status, and in particular dependence/subordination was an indicator rather than a requirement of being a worker.

• More information on the definition of worker and the general factors to consider in identifying workers can be found in Detailed guidance no.1 - Employer duties and identifying the workforce (www.thepensionsregulator.gov.uk/docs/detailed-guidance-1.pdf).

• If, after this assessment, the LLP determines that a partner is a ‘worker’ under the Pensions Act 2008, they should apply the employer duties to the worker in the same way they would for any other worker.

• This includes assessing whether qualifying earnings are payable. Qualifying earnings’ is a reference to earnings of between £5,772 and £41,865[1] made up of any of the following components of pay that are due to be paid to the worker:

- salary

- wages

- commission

- bonuses

- overtime

- statutory sick pay

- statutory maternity pay

- ordinary or additional statutory paternity pay

- statutory adoption pay.

• It is for the employer to determine if a payment to an equity partner or a salaried partner falls into one of the components of pay that make up qualifying earnings, using the dictionary definitions of those terms.

For LLPS that have already passed their staging date

• Where the Courts decide that legislation has a different meaning to that previously understood, their interpretation has retrospective effect in the sense that the legislation is considered always to have had that meaning.

• An LLP with a staging date before this ruling may have treated their partners as not being workers and as a result not automatically enrolled them.

• Where an LLP now determines that a partner is a worker for automatic enrolment and should have been treated as a worker since a date on or after the LLP’s staging date, they should take steps to automatically enrol the partner with effect from that partner’s automatic enrolment date, unless the partner already was an active member of a qualifying scheme on this date. The Regulator has no ability to waive or disapply the law.

• The partner’s automatic enrolment date is the first date that the eligible jobholder criteria were met by the worker. As the Pensions Act requires membership with effect from the automatic enrolment date, automatic enrolment may include the backdating of contributions or accrual (depending upon the type of pension scheme being used).

• Under the legislation the automatic enrolment date can be postponed but is only if the appropriate notice is issued to the jobholder before the end of the period of 6 weeks and a day after :

- the LLP’s staging date

- the partner’s first day of employment, after staging

- the date the partner met the criteria to be an eligible jobholder after staging

• Unless the partner’s automatic enrolment date falls within one of these 6 week and one day periods, postponement cannot be used.

• The opt-out period for the partner will still start on the later of the enrolment information being given or the date active membership was achieved (occupational pension scheme)/the terms and conditions of the agreement between the provider and the jobholder are given (personal pension). The partner will therefore still have the opportunity to choose to opt out of the scheme and as a result be treated as if they were never a member of the scheme on this occasion.

• If the LLP has not yet completed registration with the Pensions Regulator, then the partners should be included in the figures for registration via the registration portal. Any LLP with a registration deadline of 30 June 2014, and who may not have completed automatic enrolment of any partners they determine to be workers should contact us at customersupport@autoenrol.tpr.gov.uk (Tel: 0845 600 1011) if they are unsure of the figures they should be submitting.

• If the LLP has completed registration with the Pensions Regulator, there is no obligation to amend the figures already submitted. “*

 

*Email from TPR 10/06/14

[1] These figures are for the 2014-2015 tax year.