It was made quite clear that self-employed individuals were not deemed to be ‘Workers’ for auto enrolment purposes under the Pensions Act 2008, but on 22nd May 2014, the Supreme Court ruled that a partner of an LLP is a ‘Worker’ under the Employment Rights Act 1996 (the ERA).
Whilst that particular ruling concerned the definition of a ‘Worker’ under the ERA, the definition is very similar to that of a ‘Worker’ in the Pensions Act 2008. On this basis it could be argued that an LLP Partner is a ‘Worker’ for Automatic Enrolment purposes.
As such we strongly recommend LLP’s obtain legal advice and certainly carry out an assessment against the definition of ‘Worker’ in the Pensions Act 2008, taking account of the factors highlighted in the judgement by the Supreme Court, which are:
- Integration within the organisation
- Exclusivity – could the individual provide services to anyone else?
If an LLP determines that a partner is a ‘Worker’, the employer’s auto enrolment duties would apply in the same way as for any other ‘Worker’. This includes assessing whether any ‘Qualifying Earnings’ (QE’s) are payable, referencing the LLP’s remuneration arrangement and the types of payments that count as QE’s under the Pensions Act 2008, and if applicable auto enrol the partner into a Qualifying Workplace Pension Scheme.
In practice it is unlikely an LLP Equity Partner would have any QE’s and if this is the case there would be no requirement to auto enrol them but, even if this is the case if the Partner is deemed to be a ‘Worker’ they should be formally offered the opportunity to join the firm’s Workplace Pension Scheme. Members who are remunerated via a fixed profit share, which is guaranteed and not repayable if there is a shortfall in overall profits however may have ‘QE’s’.
This ruling applies retrospectively, so if an LLP has passed it Staging Date, the firm will need to take the necessary steps to ensure compliance with the Pension Act 2008 Workplace Pension Reform requirements in relation to any Partners deemed ‘Workers’, unless the Partner was already an active member of a qualifying scheme at that time.
Where an LLP has already completed its declaration of compliance (registration), there is no need to amend the figures already submitted. An LLP which has not yet completed its declaration should asses and include any Partners who have been deemed to be ‘Workers’.
All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs’ practice. Levels and bases of tax relief are subject to change. This is information is not provided as advice or a recommendation.