Do partners of LLPs need to be auto-enrolled into a pension scheme? This is one of the many interesting questions raised by the new pension legislation. Ian Luck looks at the rules and recent debate.
Pensions auto-enrolment – a recap
To get more people to save for their retirement the Government has introduced pensions auto-enrolment, requiring every employer to offer a qualifying workplace pension scheme (QWPS) to its employees. The rules came into effect for larger businesses in 2012 and will be implemented in stages according to the size of business by 2018. Employers are required to automatically enrol all eligible jobholders and to make contributions on their behalf. The Pensions Regulator will contact each employer 12 months before the relevant date. There will be heavy penalties for failure to comply.
Even if you already have a workplace pension scheme in place, it needs to be reviewed and possibly changed to ensure it complies. It is also up to the employer to educate new and existing employees about the implications of auto-enrolment and the direct effect it will have on them, making sure that they join the scheme at the correct time.
Who are eligible jobholders?
Eligible jobholders are either 'employees' or 'workers':
- working ordinarily in the UK
- aged at least 22 but under state pension age
- with qualifying earnings payable at or above the income tax threshold over the applicable pay reference period (weekly, monthly, etc).
Included in the definition of 'earnings' are overtime, bonuses, commission and statutory pay for parents and those on sick leave.
A 'worker' is an individual who undertakes to do work or perform services personally for another under a contract for services. There is no single test to assess whether a person is a worker and you may need to review this carefully.
Not all workers will pass the higher test to be considered 'employees' working under a contract of employment. Identifying who qualifies as an employee within an LLP may also be a tricky area. A mutual understanding of obligation between the individual and the employer is usually the key to determining this.
Are partners jobholders?
There have been two recent cases brought before the Court of Appeal looking at this contentious area.
In Tiffin v Lester Aldridge LLP, the court decided that a former fixed-share partner was a member and not an employee as his rights and obligations under the membership agreement (which were different to the terms given to employees) were inconsistent with employment status. However, a salaried partner with an employment contract rather than a membership agreement is an employee and not a member.
In the case of Clyde and Co LLP v Bates von Winkelhof, consideration was given to whether a member could be a worker. The claimant was a former junior equity partner of a law firm receiving a profit-related element of remuneration and a guaranteed pay element, whereas senior equity members received a share of profits only. The court decided that the claimant was not a worker because, as an equity member, she was able to take an active part in the running of the LLP and was not in a subordinate role.
So, while this case law suggests that a partner or member of an LLP is unlikely to be either an employee or a worker, the individual's actual circumstances, including the terms of the agreement they are working under, should be carefully assessed to ensure that this is the case.
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.
