Pension auto enrolment – does a company with only directors have to bother with auto enrolment?

The question as to whether companies with only directors and no employees have to bother with auto enrolment will increasingly be asked as auto enrolment starts to affect smaller businesses.

This is not actually an easy question to answer. So here's my view.

Companies with more than one director

If there are no 'workers', there is no auto enrolment requirement. A 'worker' is a similar definition as in employment law i.e. it is wider than employee. The function of the wider definition is to give some employment rights to people who would not otherwise have such rights. An example is the right to the National Minimum Wage. Another example is auto enrolment.

An office-holder, such as a director is not a 'worker'. An office-holder has no contract or service agreement in relation to that appointment. It may however be the case that an individual also has a contract of service and will therefore be a worker. This is where the problems potentially arise if the director carries out a wide range of activities. Do they have an implied contract of service? Some of you may remember the fuss we had about this when the National Minimum Wage was introduced in 1999. The upshot of correspondence between the ICAEW and the Department of Trade and Industry at that time was - to quote from the correspondence:

'The DTI have told us that if there is no written employment contract or other evidence of an intention to create an employer/worker relationship they will not seek to contend that there is an unwritten or implied employment relationship between a director and his company.'

So theoretically auto enrolment could apply but, in practice, I would expect The Pensions Regulator to take the same line as the DTI took in 1999. They will have enough on their plate without worrying about director only companies. Of course it would be better if we could have a definitive answer and we are writing to The Pensions Regulator on this point.

Companies with just one director

The answer above can apply here to remove the company from any auto enrolment obligation but there is an easier answer. There is a specific exemption for one man companies. If an individual is the only person in a company of which they are also a director, the employer duties do not apply even if there is an employment contract.

Companies with just one director and the spouse is the company secretary?

To answer this, we need to go back to the multi-director scenario. A company secretary is an office holder and is thus not automatically a 'worker'. If the spouse is simply carrying out the functions of a company secretary, has no other duties and does not have a contract of service, the spouse is categorically not a worker. If the spouse is carrying out a wide range of other activities the spouse may be a 'worker' and so we are writing to The Pensions Regulator on this point also.

So this may cut down the amount you accountants out there need to do. But you'll have lots of clients with employees and you can read our views as to how to help these clients in another blog here.