Andrew Kilby and Toni Carver of Armstrong Watson Financial Planning Limited examine the facts.
Previous case law under the Employment Rights Act 1996 (ERA) stated that a partner in a Limited Liability Partnership (LLP) was not considered to be a ‘worker’, but this changed on 22 May 2014 when the Supreme Court ruled, in Clyde & Co LLP v Bates van Winklehof , that a partner was indeed a worker under the ERA.
The definition of a worker under the ERA (section 230) is remarkably similar to the definition in the Pensions Act 2008 (chapter 30, section 88):
‘Employer’, ‘worker’ and related expressions
(1) This section applies for the purposes of this Part.
(2) ‘Contract of employment’ means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing.
(3) ‘Worker’ means an individual who has entered into or works under:
(a) a contract of employment, or
(b) any other contract by which the individual undertakes to do work or perform services personally for another party to the contract.
(4) But a contract is not within subsection (3)(b) if the status of the other party is by virtue of the contract that of a client or customer of a profession or business undertaking carried on by the individual concerned.
(5) For the purposes of subsection (3)(b), it does not matter whether the contract is express or implied or (if it is express) whether it is oral or in writing.
(6) Any reference to a worker’s contract is to be read in accordance with subsections (3) to (5).
(7) ‘Employer’, in relation to a worker, means the person by whom the worker is employed (subject to sections 37(5) and 38(6)).
(8) ‘Employment’ in relation to a worker, means employment under the worker’s contract, and related expressions are to be read accordingly.
The Pensions Regulator’s (TPR) view is that members of an LLP could be considered workers for automatic enrolment, so if you have not already looked at this, it is important to assess each partner’s role and establish whether or not they are a worker using the above definition.
In their Compliance and Enforcement Quarterly Bulletin 1 April-30 June 2014, TPR stated that the factors highlighted in the judgment by the Supreme Court should be taken into account, most notably the following:
- integration within the organisation
- dependence/subordination, and
- exclusivity (ie could the individual provide services to anyone else)
Once the assessment has been carried out and if you determine that a partner is indeed a worker, then the employer auto enrolment duties apply in the same way that they do for any other worker. In addition, this is retrospective, meaning that any partners affected should be automatically enrolled into a qualifying pension scheme from the firm’s automatic enrolment staging date, unless they were already an active member of a qualifying scheme at that time.
The penalties for non-compliance with auto enrolment legislation can be severe, so should you require any assistance, please get in touch with one of Armstrong Watson’s financial planning consultants.
Andrew Kilby is the managing director and Toni Carver is a technical manager at Armstrong Watson Financial Planning Limited (AWFP). AWFP is a chartered financial planning firm providing independent advice and with funds under advice in excess of £500m.
AWFP is part of the Armstrong Watson Group, a top 30 firm of UK accountants that has been endorsed by the Law Society for the provision of accountancy services to law firms throughout the North of England.