Company Directors + Small Companies + Auto Enrolment = Minefield
Submitted by hornbeam on Mon, 15/06/2015 - 13:15
As you know us chartered accountants attend courses to keep us up-to-date with current legisltion, forth coming changes that may affect our clients and of course to stop us from going rusty.
After such a great course last week the section on Auto Enrolment Legislation raised question marks and eyebrow twitching with regards Company Directors and small companies - keep on reading if you fall into this catagory.
The rules of the Auto Enrolment legislation, exempt single director companies from registration, and extend this to two or more director companies “unless one or more of the directors have contracts of employment”. Which is not as straight forward as it seems. Whilst the parliamentary draftsman could have opted to say “written contracts of employment” to eliminate ambiguity, he did not do so!
We have in UK law the established concept of “Implied Contracts of Employment”. If the employee turns up for work each day, and is paid for their work, there is an Implied Contract of Employment. This of course covers the situation of many directors working for service companies or family companies.
No one seems to know whether small companies with a couple of directors, one of whom works for the company and is paid, none of whom have a written contract, are caught by the Auto Enrolment legislation or not. The course lecturer was aware of this ambiguity and also unable to give a definitive answer.
After considering all aspects we are taking the view that although the parliamentary draftsman did not use the term “written contract” neither did they use terms such as “work for the company” or “are on the payroll of the company” and we believe the intention was to prevent the system (and in particular the pension providers) from being swamped by very small schemes of effectively self-employed directors.
Therefore on both literal and purposive interpretation we do not believe companies whose only employees are directors who do not have written contracts will have to operate auto enrolment. (Although both the legislation and our interpretation could change).