Identifying your workforce and calculating minimum contribution levels

1. Identifying your workforceand calculating minimum contribution levels Neil Esslemont Head of Industry liaison Rebecca Woodley Industry liaison manager The information we provide is for guidance only and should not be taken as a definitive interpretation of the law.

2. Automatic enrolmentChanges in legislation - 1 April 2014 Since the recording of this webinar there have been a number of changes in automatic enrolment legislation. The principles described remain the same. The changes are: • The deadline for completing registration with the regulator has been extended to five calendar months. • The period for completing automatic enrolment (joining window) has been extended to 6 weeks • A new definition of a pay reference period has been introduced which allows employers to choose to align the assessment of their workers to tax weeks or tax months • The deadline for a number of the information requirements has been extended to 6 weeks www.tpr.gov.uk/docs/resource-info-to-workers.pdf • The Opt-out window remains as one calendar month. • For the earnings thresholds for the current tax year visit our website at: www.tpr.gov.uk/earnings-thresholds The information we provide is for guidance only and should not be taken as a definitive interpretation of the law.

3. Scope of the webinar • Which workers are affected? • Assessing workers and worker categories. • Using Qualifying Earnings. • Calculating pension contributions.

4. Which workers are affected? • A worker could be subject to automatic enrolment if they: • work under a contract of employment (an employee); or • have a contract to perform work or services personally(i.e. they cannot send a substitute or sub-contract the work, unless they are unable to perform the work, e.g. due to sickness) • and are not undertaking the work as part of their own business.

5. Who is a “worker”? • Workers, for the purposes of the new duties, could be: • full or part-time • permanent or temporary / ‘casual’ • on ‘zero hours’ contracts • some contractors considered self employed for tax purposes • agency staff • staff seconded overseas • home workers

6. Worker contracts • Look carefully at any contractual arrangements and bear in mind: • terms of employment can be implied, rather than explicitly stated • a contract does not have to be in writing, it can be a verbal contract • some staff are considered workers even when not carrying out work, if there is an enduring employment relationship (e.g. some ‘zero hours’ contracts) • if a worker has more than one contract with an employer, the employer should make a ‘reasonable judgement’ as to whether to aggregate or separately assess

7. Who is a personal services “worker”? • An individual considered as self-employed for tax purposes, could still be assessed as a “worker” for the purposes of the new duties, if: • the employer expects them to perform the work themselves and • they cannot sub-contract the work or send a substitute, unless they are unable to perform the work (e.g. due to sickness) and • they are not undertaking the work as part of their own business, so: • most, or all, of the following statements are true:- the employer ... • has control over an individual’s method of work (e.g. hours worked) • provides employee benefits • bears all the significant financial risks in carrying out the work (e.g. the worker is not financially responsible for faulty work) • provides what is required for the individual to carry out the work • The list is not exhaustive, an employer must take into account all relevant considerations and make a reasonable judgement

8. Wholly working in the UK? † • A worker can be considered to be whollyworking in the UK • if a worker’s contract specifies that the work is to be done in the UK; or • if they are an “offshore worker” and work in the territorial waters of the UK (or in the UK sector of the continental shelf – please see Employer’s Detailed Guides); and • there is no simultaneous employment relationship between the worker and a non-UK employer for the same work. • It does not matter whether the worker is a UK national. • It does not matter whether they make occasional business trips outside the UK. • †excluding the Channel Isles and the Isle of Man

9. Ordinarily working in the UK? † • Or, if they are not wholly working in the UK (e.g. an airline pilot), do they ordinarily work in the UK • What does the employment contract specify & how does it work in practice: • where the worker begins and ends their work; • where their private residence is, or is intended to be; • where the worker’s headquarters is; • whether they pay income tax and National Insurance contributions in UK; • whether their work has a sufficiently strong connection to the UK; and • what currency they are paid in. †excluding the Channel Isles and the Isle of Man

10. Who is seconded overseas? • Individuals working on secondment from another company will usually remain a worker for the company from which they are seconded • If a UK-based employer makes a short term placement of a worker outside the UK they will need to consider whether the worker’s base remains in the UK despite their placement overseas, so: • there is an expectation on the part of the employer that the worker will resume working in the UK for the UK-based employer at the end of the placement; and • that worker would be, were it not for the placement, assessed as working or ordinarily working in the UK; then the worker is likely to be considered to be ordinarily working in the UK and could be subject to automatic enrolment

11. Who is seconded to the UK? • If a non-UK employer sends a worker on secondment to a UK organisation, the non-UK employer will need to consider whether the worker’s base remains outside the UK despite their secondment to the UK, so: • if the worker’s contract remains with the employer located outside the UK; and • there is an expectation on the part of the employer that the worker will return to work for their employer outside the UK at the end of their placement; • then the worker is unlikely to be considered to be ordinarily working in the UK and therefore would not be subject to automatic enrolment

12. For a worker who: works under a contract of employment (an employee); or is directly contracted to perform work personally to the company who pays them (a ‘personal services worker’): the ‘employer’ will be the legal entity named in the contract. Otherwise If a worker who is supplied by an agent to a third party (the principal), to perform work personally, under a contract or arrangement between the agent and the principal: the agent or principal will be the agency worker’s ‘employer’, depending on which is responsible for paying the worker; or, if it cannot be determined who is responsible for paying the worker, then whichever actually pays the worker will be the ‘employer’. Who is the worker’s ‘employer’?

13. Who else is exempt? • Other exemptions from automatic enrolment duties include: • some office-holders, e.g. a non-executive director(but only for the activities they carry out as an office holder) • serving members of the military • a company with only one employee, if that employee is a director of that company

14. Excluded? (e.g. some Office Holders) An employee? No Not a “worker” Not a “worker” or is other employer’s “worker” Yes Yes No Whollyor Ordinarily Working in UK? A ‘Personal services worker’? STEP 1 Is the person a “worker”? No No Yes Yes Not a “worker” Answered all possible questions above? Then go to STEP 2 • Please refer to the Employers Detailed Guides … • Vol 1 – Employer Duties & Defining the Workforce: • Personal services workers • Office Holders • Vol 3 – Assessing the Workforce: • Ordinarily working in UK In Step 1, determine if the person is covered by the automatic enrolment legislation (you can answer the questions in the diamond boxes in any order): If you reach a yellow lozenge, then the person is either not a “worker” and does not have to be assessed for eligibility and/or is not your responsibility. Otherwise, if you have answered all possible questions and not come to a yellow lozenge, proceed to Step 2.

15. In Step 2, is the person your responsibility as the ‘employer’? Answer the questions, in order, to see if the person is your “worker” - and if you therefore have a duty under the automatic enrolment legislation. • Please refer to the Employers Detailed • Guides … • Vol 1 – Employer Duties & Defining the • Workforce: • Personal Services contracts • Agency Workers STEP 1 Is the person a UK worker? Other employer’s “worker” Yes Yes Are they responsible for paying the worker? STEP 2 Who is worker’s “employer”? Other employer’s “worker” No You pay the worker? No No Is worker an employee? Employment contract with you? You contract with another company / agency? Yes Yes Yes Yes No No Your “worker” Your “worker”

16. An employee? No Not a “worker” or is other employer’s “worker” Yes Yes No Whollyor Ordinarily Working in UK? A ‘Personal services worker’? STEP 1 Is the person a UK worker? No No Yes Yes Not a Jobholder or Entitled Worker Not a “worker” Yes STEP 2 Who is worker’s “employer”? Other employer’s “worker” No No Is worker an employee? Employment contract with you? Yes Yes No Your “worker” Excluded? (e.g. some Office Holders) Not a “worker” Other employer’s “worker” Yes Are they responsible for paying the worker? No You pay the worker? No You contract with another company / agency? Yes Yes No Your “worker”

17. Two examples. Who is a worker?

18. Is Eddie a worker? Eddie is a self employed graphic designer. He works regularly for a company, Acme Laptops Ltd. His role is unique. He designs (and, if necessary, prints on his own equipment) all the flyers and magazine ads. He also designs and updates their website and forum. Eddie is very important to Acme Laptops’ marketing strategy. It is a nightmare when Eddie is too busy working for other customers, because his contract with Acme does not permit him to send a replacement. Eddie works unsupervised and, generally, he works from home, but sometimes he works in the offices of Acme Laptops. Eddie invoices Acme Laptops at the end of each campaign design and guarantees the quality of his material.Should Acme Laptops consider Eddie to be their worker?

19. Is Eddie a worker? Eddie is a self employed graphic designer. He works regularly for a company, Acme Laptops Ltd. His role is unique. He designs (and, if necessary, prints on his own equipment) all the flyers and magazine ads. He also designs and updates their website and forum. Eddie is very important to Acme Laptops’ marketing strategy. It is a nightmare when Eddie is too busy working for other customers, because his contract with Acme does not permit him to send a replacement. Eddie works unsupervised and, generally, he works from home, but sometimes he works in the offices of Acme Laptops. Eddie invoices Acme Laptops at the end of each campaign design and guarantees the quality of his material.Eddie is a personal services contractor, but is unlikely to be a “worker”, as: i) he is not an employee ii) he sometimes uses his own equipment iii) he works unsupervised & iv) he guarantees the quality of his work

20. Is Georgina a worker? Georgina is a self employed IT professional who works full time for Acme Laptops Ltd. Georgina supports Acme Laptops’ in house payroll system and is very important to Acme Laptops and no one else has the expertise to do her work when she’s on holiday. Georgina works in Acme Laptops’ payroll administration team in their offices, alongside Acme Laptops’ own employees, but sometimes she is allowed to work from home. Georgina invoices Acme Laptops at the end of each month based on the number of days she has worked.Should Acme Laptops consider Georgina to be their worker?

21. Is Georgina a worker? Georgina is a self employed IT professional who works full time for Acme Laptops Ltd. Georgina supports Acme Laptops’ in house payroll system and is very important to Acme Laptops and no one else has the expertise to do her work when she’s on holiday. Georgina works in Acme Laptops’ payroll administration team in their offices, alongside Acme Laptops’ own employees, but sometimes she is allowed to work from home. Georgina invoices Acme Laptops at the end of each month based on the number of days she has worked.Georgina will probably be considered a personal services “worker”, because: • she is supervised by Acme Laptops’ (needs permission to work at home) • she works in their offices (uses their office equipment and supplies) • she is paid a daily rate (the completed work is not guaranteed)

22. Calculating pension contributions

23. Calculating pension contributions • In order to work out what pension contributions are required, there are certain steps you will need to take: • Assess your workers (always using qualifying earnings) • Determine pensionable earnings (which may or may not be based on qualifying earnings)

24. Calculating pension contributions Step 1 – assessment • Determine each worker’s category - on their Assessment Day: • the employer’s Staging Date for any existing workers; • the first day of employment for any new joiner after the staging date; • the birthday of someone turning 16 or 22 years old; or • the first day of the Pay Reference Period (PRP) for any other worker assessed after the employers staging date; or • if Postponement has been used, the last day of the Postponement period. • This assessment must be based on their total Qualifying Earnings - paid in the PRP in which the Assessment Day falls – and compared to the earnings thresholds

25. Worker categories Non-Eligible Jobholders can ‘Opt In’ to an ‘automatic enrolment pension scheme’ Under £5,668†pa Entitled Worker Can request to ‘Join’ a pension scheme Between £5,668 pa and up to £9,440† pa Non-Eligible Jobholder Eligible Jobholder Non-Eligible Jobholder Non-Eligible Jobholder More than £9,440†pa * SPA = State Pension Age †Figures for 2013/14 Employer must automatically enrol Eligible Jobholders into an ‘automatic enrolment pension scheme’

26. Thresholds v Pay Reference Periods (PRP) 2013-14 †For other PRP durations, multiply the number of weeks in the PRP by the weekly amount (eg £182.00) or number of months by the monthly amount (eg £787.00) etc - or pro-rata if not an exact multiple of any of the above. N.B. The Secretary of State will review these figures each tax year.

27. Qualifying Earnings • Qualifying Earnings is defined as all of the following items paid to a worker: • salary • wages • commission • bonuses • overtime • statutory sick pay • statutory maternity pay • ordinary or additional statutory paternity pay • statutory adoption pay; and • any pay element which could be considered as any of the above (excluding expenses)

28. Calculating pension contributions Step 2 - determine pensionable earnings • Pensionable earnings will be defined by the pension scheme rules • Pensionable earnings may (or may not) be based on Qualifying Earnings • If Qualifying Earnings used for pension scheme rules, only Qualifying Earnings between the Lower Earnings Threshold and the Upper Earnings Limit may be pensionable • If Qualifying Earnings are not used for pension scheme rules, then ‘Self Certification’ may be used • Minimum contribution levels are being phased in over a number of years

29. DC Scheme Minimum Contributions Phase 2 Phase 3 Phase 1 Min DC 8% total* Min DC 5% total* * % of Qualifying Earnings Min DC 3% employer* Minimum DC 2% total contribution* Min DC 2% employer* Minimum DC 1% employer contribution* New born Employers Large employers Medium employers Small/micro employers Feb 2018 Oct 2017 Oct 2018 Oct 2012 April2014 June2015 May2017

30. DC Self Certification An employer may have an existing scheme – or may wish to use a new scheme - which does not use Qualifying Earnings as the definition of pensionable earnings. So, as an alternative, the minimum requirements can be met by DC pension schemes if, under the scheme rules (or agreements, in the case of a personal pension scheme): the total minimum contribution must be at least 9% of the scheme’s definition of pensionable pay (at least 4% of which must be the employer’s contribution) providing at least basic pay (from £1) is pensionable; or the total minimum contribution must be at least 8% of the scheme’s definition of pensionable pay (at least 3% of which must be the employer’s contribution) provided that pensionable pay constitutes at least 85% of total pay (the ratio of pensionable pay to total pay can be calculated as an average at scheme level); or the total minimum contribution must be at least 7% of the pension scheme’s definition of pensionable pay (at least 3% of which must be the employer’s contribution), provided that total pay is pensionable.

31. DC Self Certification during Phasing period

32. Thresholds v Pay Reference Periods (PRP) 2013-14 †For other PRP durations, multiply the number of weeks in the PRP by the weekly amount (eg £182.00) or number of months by the monthly amount (eg £787.00) etc - or pro-rata if not an exact multiple of any of the above. N.B. The Secretary of State will review these figures each tax year.

33. Andy – a part time sales manager with variable hours Commission paid on large sale Not pensionable for schemes based on QE (above Upper Earnings Limit) Annual bonus Pensionable earnings for schemes based on QE Overtime

34. Example – Minimum requirements scheme (based on Qualifying Earnings in 2013/14) Annual calculation differs from totals of each PRP †Capped at Upper Earnings Threshold minus LET

35. Example – Self Certified pension scheme (based on Tier 2 & basic salary only) Annual calculation is the same as the totals of each PRP

36. New regulations for minimum requirement schemes† • For legal minimum DC schemes based on Qualifying Earnings: • The pension provider has to do an annual test to check that the contributions paid over the preceding 12 months are equal to the entitlement under the scheme rules. • If a jobholder’s automatic enrolment date is in the middle of a Pay Reference Period (PRP), the scheme rules may require a part period contribution calculation. • From 1st Nov 2013, the new regulations mean: • If an employer chooses to use the new tax week or month PRP for the assessment of workers, the scheme rules can specify that the contributions required are specified per PRP and the scheme provider will not need to do this 12 month check. • If the employer chooses to use a tax week/month PRP to assess their workers (and the pension scheme rules allow it), then the first and last contribution would be based on a full PRP and there would not be any part-period contributions, so: for workers joining in the middle of a PRP - the contribution for that part-period would be zero and a full contribution would be due for the following PRP; for leavers - a full contribution would be due, even if for only a part-period. • N.B. The effective start date for pension scheme membership remains the assessment date and this is not changed by any of these new regulations. †i.e. Pension schemes matching the Pensions Act 2008 section 20/26 rules

37. Useful Links Automatic enrolment guidance and tools www.thepensionsregulator.gov.uk/employers.aspx Planning for Automatic Enrolment www.tpr.gov.uk/employers/planning-for-automatic-enrolment.aspx Know your workforcewww.tpr.gov.uk/employers/know-your-workforce.aspx Detailed guides for Employers (and pension professionals): www.tpr.gov.uk/doc-library/automatic-enrolment-detailed-guidance.aspx What will automatic enrolment cost me?: www.tpr.gov.uk/employers/what-will-automatic-enrolment-cost-me.aspx What information do employers need to provide to their workers? www.tpr.gov.uk/docs/Pensions-reform-resource-information-to-workers.pdf Information about Registration and employer checklist: www.tpr.gov.uk/employers/registration.aspx www.tpr.gov.uk/docs/automatic-enrolment-online-registration-checklist.pdf Letter templates for employers: www.tpr.gov.uk/employers/letter-templates-for-employers.aspx

38. Any questions?

39. Automatic enrolment • We are here to help! • Contact us at • www.tpr.gov.uk/contact-us.aspx • Subscribe to our news by email • www.tpr.gov.uk/subscribe.aspx The information we provide is for guidance only and should not be taken as a definitive interpretation of the law.