Employers in the UK have Automatic Enrolment (AE) duties. However, in certain instances, Directors may be exempt.
Definition of a Director
When the Pensions Regulator refers to a director, they mean anyone holding office as a director. This does not include a person who is a director in name only.
In the case of a company, it means a director formally appointed under the Companies Act 2006. It also includes anyone acting as a director in the sense of having a decision-making role in the corporate governance of the company, even if they have not been properly appointed.
In the case of corporate bodies (other than companies), it means anyone holding an office of director created by the establishing legislation or Royal Charter.
Companies with only Director(s)
1. Directors without contracts of Employment (Exempt from AE)
If a director does not have an employment contract, they cannot be a worker and are exempt from Automatic Enrolment.
A company with one or more directors who do not have contracts of employment is not an employer and does not have any Auto Enrolment duties.
The company doesn’t need to set up a workplace pension scheme or complete a Declaration of Compliance (DOC). In this case, the employer should inform the Pensions Regulator that they have no workers here.
2. Directors with contracts of Employment
If a company has one director with a contract of employment, the director is still not classified as a worker. Therefore, the company will still not have any auto-enrolment duties. Any additional directors, without contracts of employment, would not change the company’s situation as they would not be classified as workers.
If the company takes on another director, also with a contract of employment, then the organisation will now have AE duties. Therefore, the company will have to complete a Declaration of Compliance (DOC) and make a decision on whether to enrol the directors into a workplace pension scheme or not.
If the company has at least two directors with contracts of employment, they are considered as workers by The Pensions Regulator. However, the company still retains the right to enrol them into the pension scheme.
It is also important to note that the director would retain the right to opt into the scheme and if he or she does so, a workplace pension scheme would need to be set up by the company.
Auto-enrolment pensions and Salary Exchange are set up and taken care of for you.
What if I employ someone else who is not a director?
If the Director(s) have no contracts of employment, the company’s AE duties will begin from the day the first regular worker joins the company.
Additionally, if the company had only one Director with a contract of employment or multiple directors but only one who had a contract of employment, they would remain exempt from auto-enrolment duties until the new worker joined.
When the new worker joins, it will also trigger the single director with a contract of employment to be defined as a worker. The company will need to complete the Declaration of Compliance (DOC). The employer will also have to set up a workplace pension scheme and enrol* the regular worker into the scheme.
As previously explained, the company keeps the right to choose whether to enrol the Director into the scheme or not. The director would retain the right to opt into the scheme.
*Enrolment of directors and workers into a scheme is subject to the normal eligibility criteria. Read more here.
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