Auto Enrolment Pension Reforms: Umbrella companies and personal services companies-who is the employer?
The auto enrolment pension reforms which are due to commence from October this year will impose new responsibilities on employers. Employment businesses will have to consider their obligations not only to their staff (consultants, admin staff etc) but also to the workers they supply to clients. We previously outlined ‘Automatic enrolment –
Pension reforms’ in the July/August 2011 Legal bulletin.
The new pension obligations will principally require employers to:
• Enrol eligible workers into a qualifying pension scheme
(workers choose to opt out)
• Contribute to the scheme
• Provide certain information to the workers
One issue that is being raised increasingly is about the impact that these employer obligations will have on employment businesses that supply limited company contractors; either those working through personal services companies or umbrella company workers.
Umbrella Companies
Under the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (the Conduct Regulations), a work seeker can either be an individual or a body corporate (a limited company of even a limited liability partnership). When an employment businesses works with an umbrella company, typically the umbrella company will have a contract for services with the employment business and it will engage individuals under a contract of employment. In this arrangement the umbrella company is a work seeker. The individuals who undertake assignments do so as employees of the umbrella company.
Regulations 14 and 15 of the Conduct Regulations require the employment business to agree certain terms with the work seeker before providing work finding services. Where the work seeker is the umbrella company, these terms are agreed between the employment business and the umbrella company. It should be noted though that in a situation where an individual approaches an employment business for work who does not already have relationship with an umbrella company, regulations 14 and 15 of the Conduct Regulations require the employment business to agree terms with the individual before providing any work finding services (e.g. before commencing the search for an assignment).
The situation can often become confusing if the individual at a later date works through an umbrella company which in turn is engaged by the employment business as a work seeker. The employment business needs to take steps to ensure that it is clear under which arrangement the work seeker undertakes any subsequent assignments i.e. either as a directly engaged worker of the employment business or as an employee of the umbrella company.
For the purpose of the new pension employer obligations, the Pensions Act 2008 defines a worker as an individual (rather than a company) who works under either a contract of employment or any other contract by which he or she undertakes to work or perform services personally for another party under the contract. The employer is the party who has the contract with the individual. There are additional safeguards that apply to agency workers which ensure that in the event of there being any confusion over the contractual arrangements that are in place, the party who is responsible for paying the worker or who actually does pay the worker, is the one who will be responsible for the employer pension obligations.
This means that where an employment business has entered into a contract for services with an umbrella company and the umbrella company employs the individual workers, it will be the umbrella company who is responsible for the employer obligations. As previously reported in the July/ August 2011 Legal bulletin the new pension obligations will be applied to employers in stages, commencing with the largest employers (by size of pay roll) from October 2012, followed by medium and smaller employers. The staging process was set to be rolled out over a four year period (the dates for the smallest employers are currently being reviewed but employers with more than 3000 workers will be unaffected by the review). The date that the employers are required to apply the new pension obligations from is referred to as the staging date.
Employment businesses that work with umbrella companies should bear in mind that the worker will be entitled to the benefit of the new pension rights from the applicable staging date of his/her employer (i.e. the umbrella company) rather than from the employment businesses staging date. If the umbrella company has an earlier staging date than the employment business this will result in the employment business indirectly supplying workers who are entitled to be auto enrolled into a pension before the employment businesses own staging date for its directly engaged workers.
In this respect it is important to remember that it will be the umbrella company as the employer that is responsible for the new employer pension obligations. It remains to be seen how the umbrella companies will go about dealing with any additional cost or administration.
Personal Services Company Contractors
What then of limited company contractors who operate through their own personal services companies? The Pensions Act 2008 specifically provides that a person who is a director of a company is not a worker who is entitled to the new rights unless he or she is employed by the company (under a contract or employment) and there is at least one other employee who is also engaged under a contract of employment by the company. So contractors who are directors of their own personal services companies which have no other employees are not eligible to be auto enrolled. In any case if the company did meet the criteria, it, rather than the employment business would be the employer with the obligations to auto enrol.
