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Pension auto-enrolment – new exception option for directors

After several years of lobbying by professional accountancy bodies and others, the government has provided a sensible set of rules on the question of whether directors are required to be enrolled into an employer provided pension auto-enrolment scheme.

Sarah Pownall, payroll services manager and auto-enrolment specialist at Clayton & Brewill in Nottingham, explains what this will mean for directors and their businesses.

The latest development has been the issue of legislation to allow companies to opt to exclude directors from auto-enrolment.

This will provide comfort for many employers; particularly smaller businesses that have yet to go through the auto enrolment process and those – like many of our clients at Clayton & Brewill – that are director-only companies.

Prior to this new legislation, directors could be exempt from auto-enrolment if they did not have a written or implied contract of employment. Many directors of small companies do not have written contracts but it can be difficult to be completely definitive as to whether an implied contract exists.

If there are only directors in the company and it is not clear whether they have contracts of employment, you now have two alternatives to choose from if you want to minimise the auto enrolment duties for your business:

Option 1

You could conclude that the directors have no implied contracts of employment. This would mean that there is no requirement for your company to have an auto enrolment pension scheme as there are no workers.

It’s important to confirm this with The Pension Regulator (TPR) using the following link – http://www.thepensionsregulator.gov.uk/en/employers/what-if-i-dont-have-any-staff.aspx.

This will ensure the Pension Regulator (TPR) will stop issuing reminder letters about the auto enrolment duties of your company.

Option 2 – the new exception

If directors have contracts of employment, you can use the new exception. You will need to complete a ‘declaration of compliance’ after the date the company was required to have set up an auto enrolment scheme (the staging date) has passed.

The declaration would show the directors as workers but that they had not been auto enrolled due to the exception.

Whichever option you choose, if your company has employees, note that you will still have a duty to set up an auto enrolment scheme and enrol any eligible workers.

Specialist auto-enrolment help from Clayton & Brewill

For help with any aspect of auto-enrolment please do get in touch. We can help you to work out how best to tackle auto-enrolment and guide you through the steps you need to take. Contact us on 0115 950 3044 or click here to send an email.