Are Directors Exempt from Pension Auto-Enrolment? What You Need To Know

What does it mean for someone to be a director?

The term “director” refers to anyone who holds an office of director. This includes individuals who hold offices such as president, vice president, secretary, treasurer, chief executive officer, etc., as well as those who hold an office as a director, such as chairman, chairwoman, managing director, managing partner, managing member, etc. In addition, it includes those who hold an office of an organization, such as governor, mayor, councilman, senator, congressman, etc.

When is a director considered to be an employee?

In Australia, directors are generally considered workers. However, there are exceptions where directors are not treated as employees.

The definition of “worker” includes anyone who works for another person or entity. In the case of directors, the term “director” refers to someone who holds office in a corporation.

A director is only a worker (i.e., he/she is not a self-employed individual) if there is a written agreement between him/her and the employer specifying the terms and conditions of his/her employment. An oral agreement does not constitute a valid contract of employment.

If you are unsure about whether a particular arrangement constitutes a valid contract of employment, it is advisable to seek legal advice.

Directors without an employment contract

The Director General of Employment Relationships says directors without an employment contract are never automatically enrolled into the state pension scheme. They are always exempt from automatic enrollment because they do not meet the definition of an employee under the Pensions Act 2004.

An organisation with one or more directors who do not have an employment contract is not an employer if those directors do not have any employees other than themselves. This includes directors who work part-time, such as retired people. However, where there are no employees other than directors, it does not matter whether they have an employment contract.

A company must tell us if their circumstances change so that automatic enrolment applies.

Directors who have a job contract even though there are no other employees

The law states that companies with one director who has an employment agreement cannot be classed as employers. However, it does not apply to companies with multiple directors. If a company has three directors and none of them have an employment contract, they must each register themselves as self-employed with the Pension Regulator.

Companies with multiple directors must declare whether they consider each person to be an employee or a self-employed contractor. The law says that if a company considers someone to be an employee, they must make sure that they pay national insurance contributions and provide social security benefits.

If a company with multiple directors decides to take on new employees, they must inform the Pension Regulator within 30 days of doing so. They must also tell the regulator about any change to their status within six months.

Directors who have a job contract but are not the only employees

A director of a small public limited company doesn’t automatically become eligible for automatic enrolment into a workplace pension scheme unless he/she is one of the company’s employees. This applies even if the director has been employed by the company for many years and there are no other employees working alongside him/her.

This is because directors do not count as “employees” under the law. However, it does mean that directors who hold an employment contract with the company and are not the sole member of staff are likely to fall outside of the scope of automatic enrolment.

If they are over 55 and earn less that £10,000 per annum, they will not have to make contributions to their pension.

Groups whose employees are all exempt

The government has announced that organisations whose staff are all exempt do not need to declare themselves compliant with GDPR. This includes charities, religious institutions and educational establishments.

However, it does mean that those organisations are required to report any change to their exemption status within 28 days of the change taking place. If there is no change, then there is no requirement to make the notification.

In addition, the data protection authority has published guidance on how such exemptions work.

When organizations with only directors start to have jobs,

Director-only companies are often used where it is thought that the board does not need to be involved in day-to-day operations. The idea behind director-only companies is that the directors do not need to be concerned about the daily running of the company, and therefore do not need to worry about being liable for breaches of duty. This might seem sensible enough, but it turns out that director-only companies are still subject to many of the same legal obligations as normal companies.

In fact, under certain circumstances, directors of director-only companies can actually become personally liable for the acts of the company. For example, if a director fails to pay his or her personal tax bill, he or she could find themselves personally responsible for paying the money owed. Similarly, if a director mismanages the affairs of the company, he or she could face criminal charges, depending on the level of negligence shown.

The law states that directors of director-only businesses must act reasonably and fairly towards the company. They must ensure that the company is run properly, and take reasonable steps to prevent misconduct within the company. If a director fails to fulfil his or her duties, he or she could be found guilty of breaching section 172 of the Companies Act 2006. This section provides that directors must discharge their duties honestly, diligently and in good faith, and that they must act fairly and reasonably in the interests of the company.

If you have a director-only company, it is important to make sure that you understand what your responsibilities are. You should consider whether you want to put yourself in a position where you could potentially be held personally liable for the actions of the company.

Other office-holders

Office holders who perform only the duties of their office are not considered workers and are therefore exempt from auto enrolments. This includes directors, managers, supervisors, assistants, clerks, secretaries, receptionists, etc.

Married couples and civil partners

In recent times, it has become increasingly common for people to marry or enter into a civil partnership. This change in social attitudes towards marriage and relationships has led to many changes within the legal system. One such change is the decision to allow married couples and civil partners to split up their incomes evenly. Another change is the ability for married couples and civil partners in England and Wales to take out life insurance without any limits on the amount insured.

Frequently Asked Questions

When is a director considered an employee for the purposes of auto-enrollment?

If you’re running a small business, you might think that having directors on board isn’t such a big deal. After all, they don’t do anything, right? Wrong. Having directors on board does matter for auto-enrolments. In fact, it matters quite a lot.

The law says that every person employed by a company must be automatically enrolled into the workplace pension scheme unless they opt out themselves. However, there are some exceptions. For example, if the company has fewer than 20 employees, or if none of the directors have employment contracts, then they won’t be classed as employees and won’t be covered under the pensions rules.

However, if the company employs more than 20 workers, but less than 50, and at least one of the directors has a contract of employment, then they will be classed as employees. And that means they’ll be covered under the pension rules.

In short, if you have more than 20 employees, you can forget about trying to avoid being treated as an employer for auto- enrolment purposes. You simply have to make sure that everyone is covered under the pension rules, including the directors.

When does a company have responsibilities for workplace pensions and automatic enrollment?

The government says companies become employers once they start taking on employees who aren’t directors. But what about those businesses where there are just two or three directors? Does that mean they don’t have to set up a workplace pension scheme and auto-enrol their workers? Not necessarily.

A company becomes an employer as early as when it takes on a member of the workforce who isn’t a director. This includes anyone employed under a written contract. If you’ve got one employee working for you, you’re an employer even if you’re only paying him £5 a week.

As long as there are two or more directors, the law requires that they each have an employment contract. So, if you employ four people, you’ll need four separate contracts. These could cover anything from wages to holiday pay. You’ll need to make sure that everyone gets paid properly and that you comply with all the relevant laws.

If you want to know more about how to manage your small business finances, check out our guide here.