In our experience, charities with paid staff are usually aware of the fact that they owe certain duties to their employees in relation to pensions and auto-enrolment.
As Paul Seath explains here, pension auto-enrolment may also affect paid charity trustees
While the concept of unpaid trusteeship is one of the defining characteristics of the charitable sector there are cases where board members are paid for their services to the charity. Any such payment must be authorised by the charity's constitution, the statutory powers in the Charities Act 2011, or by the Charity Commission.
Where trustees are paid, the charity must consider whether the paid trustee would be classified as an 'employee' or 'worker' of the charity. As well as the potential employment rights that accompany this status, the charity must ensure that it complies with its duties in relation to pension auto-enrolment.
Are paid trustees 'workers'?
The employer pension reforms came into force in June 2012 under the Pensions Act 2008. Under the new regime all UK employers will eventually be required to auto-enrol eligible workers in a pension scheme and make mandatory contributions. The duties a charity has in relation to any paid trustees for the purposes of auto-enrolment will depend on whether they are classified as workers under that Act.
A 'worker' is an individual who has entered into or works under either:
- a contract of employment; or
- any other contract under which the individual undertakes to do work or perform services personally for another party to the contract (except where the other party is a client or customer of the individual).
The definition is broad and in all cases the facts will need to be examined before deciding whether a paid trustee is a worker. It is very unusual for there to be a formal contract of employment between a charity and a paid trustee; but where this is the case, they will clearly be a 'worker'. It is more common for trustees to be paid for particular services they perform for the charity: here all will depend on the particular circumstances.
The Pensions Regulator has published guidance listing factors to be considered in making the assessment of whether an individual is a 'worker'. This list includes whether there is personal service, subordination and mutuality of obligation.
While the regulator states that no single factor is crucial in determining the status of an individual, the absence of a requirement for personal service ought to be fatal to any assertion that the individual is a worker for the purposes of auto-enrolment. Personal service is likely to be found where the trustee must carry out the service themselves, i.e. they cannot substitute someone else to provide the service. Other factors that suggest an employer/worker relationship are where the paid trustee has appraisals or must meet deadlines or targets, which suggests a strong element of subordination.
Duties under the Pensions Act 2008
Once a charity has identified that they have a 'worker', the next step is to ascertain what type of worker they have, as it is only in respect of certain types of workers that a charity will have auto-enrolment duties.
The two main categories of 'worker' to which pension duties apply are Jobholders and Entitled Workers. The category of 'Jobholder' sub-divides into two groups: Eligible Jobholders and Non-Eligible Jobholders.
Whether a trustee needs to be auto-enrolled into a qualifying pension scheme will depend on whether they are an Eligible Jobholder or not. Eligible Jobholders must be auto-enrolled. Non-Eligible Jobholders do not need to be automatically enrolled but they do have the right to opt in to an automatic enrolment scheme. Entitled Workers do not need to be automatically enrolled but they do have a right to join a pension scheme, which can be a different scheme to the one used for auto-enrolment.
The category into which a worker falls is determined by their age and the level of their earnings, and professional advice should be sought if this analysis is required. The earnings trigger for automatic enrolment for the 2015-2016 tax year was £10,000 per year. Any trustee aged between 22 and state pension age and earning more than this amount would be an Eligible Jobholder and qualify for auto-enrolment. The threshold changes each tax year, but it is expected to remain the same for the 2016-2017 tax year.
If a trustee receives payments equal to or below the earnings trigger for automatic enrolment but above the threshold for qualifying earnings (currently £5,824 per year) they will be a Non-Eligible Jobholder. A trustee aged between 16-21 or state pension age and 74 and earning above the trigger for automatic enrolment would also be a Non-Eligible Jobholder.
If a trustee receives payments at the lower earnings threshold or below, they would be an Entitled Worker.
If a charity does owe pension duties it will need to check its staging date – this is the date on which the charity's automatic enrolment duties come into effect. This can be done on http://www.thepensionsregulator.gov.uk by entering the organisation's PAYE reference.
The website also has useful information on the auto-enrolment regime, employer's duties and supporting guidance.
While each case will depend on its particular facts, charities with paid trustees must be alert to the fact that pension duties and contributions could be owed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.