Lately you may have seen commentary on the judgment of the Supreme Court in the case of Clyde & Co LLP and another v Bates van Winkelhof 2014. The decision means that a member of a limited liability partnership (LLP) could be considered as a "worker" and therefore afforded protection under the 'whistleblowing' provisions. The decision has inadvertently brought into question whether members of LLPs are also caught by the pensions auto-enrolment requirements by virtue of possibly being considered "workers".
The Pensions Regulator has been considering the issue since the ruling and has now said that the Supreme Court's decision is indeed applicable for auto-enrolment and LLPs will now have to assess their members and consider whether they should be auto-enrolled.
Auto-enrolment and LLP's: Call to action
LLPs are structured differently according to specific partnership agreements, so it is essential for each LLP to consider its position independently. The effect of this is not that every member of an LLP is necessarily a 'worker' for automatic enrolment purposes, rather that they could be a 'worker' for automatic enrolment.
For LLPs with less than 61 employees (as at 1 April 2012) their staging date will be from 1 August 2014 onwards so there is still time to review and assess the members against the definition of worker in the Pensions Act 2008.
Larger LLPs, who have passed their staging date, will need to assess the members immediately.
Of course, many professional practice firms have retained their service companies following HMRC changes and will already have set up auto-enrolment schemes for their employees. The bad news is that they may now have to set up a separate scheme for the LLP to accommodate the members. The good news is that as the LLP does not have a PAYE scheme the staging date will be 1 April 2007, however to ensure that the LLP has a choice of scheme in which to auto-enrol its members it may be best to look at establishing a scheme now.
Auto-enrolment: What needs to be considered by the LLP?
- Is the member truly self-employed or a 'worker' for auto-enrolment purposes? Fundamental to this is a member's level of integration and subordination to the organisation and what freedom they have to provide their services to other organisations.
- Are salaried and equity members to be treated differently?
- Do the members receive any payments that would fall within the definition of 'qualifying earnings'?
- The implications to the LLP if it has already passed it's 'staging date'.
A Pensions Act is to be enacted later this year, and the Government is considering introducing a number of auto-enrolment easements, including where pension 'protection' already exists. In the interim it is important that if members are auto-enrolled, the LLP should make them aware of the negative impact on any pension "protection" that is already in place.
It is imperative that LLPs communicate with their members now and during the process of assessment as this may protect against dissatisfied partners in the future.
"Hard workers are usually honest; industry lifts them above temptation." Christian Bovée (1820 – 1904)
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.