Pensions and personal service workers: what are your legal duties?

With large employers having completed their auto-enrolment duties, the focus is now on smaller employers who have between 1 and 49 staff. They too must now set up a pension for their employees.

What many people do not realise,is that families who employ staff, such as nannies, carers, cooks or cleaners are treated as employers under the auto-enrolment legislation, and have a statutory duty to provide and pay into a pension for them.

As an employer, your first step is to see if you employ anyone classed as a ‘worker’ under the employer duties legislation. To do this, you must understand your contractual relationships. A worker is defined as any individual who:

• Works under a contract of employment (an employee), OR
• Has a contract to perform work or services personally and is not undertaking the work as part of their own business.

However, on rare occasions, an employer may employ a certain type of worker, but not have a PAYE scheme. This may be the case where workers are employed on personal service contracts, for whom an employer is not required to deduct and pay PAYE tax. In these circumstances, the employer will have a staging date of 1st April 2017.

If an individual has been personally contracted to perform work or services, (other than as part of their own separate business) as an employer, you must be aware that they may still need to be assessed as a ‘worker’.

Often, an individual who is paid a fee as a self-employed contractor under a contract for services is not normally classed as a worker.

The distinction between a self-employed contractor and a personal services worker is much debated in employment law.

Employers should not rely solely on a person’s tax status when assessing whether they are a worker.

Individuals are likely to be considered as such if most, or all, of the following statements are true:

• The employer relies on the individual’s expertise and expects them to perform the work themselves.
• There is an element of subordination between the employer and individual, for example the individual reports to the employer’s managers or directors in respect of the specific project on which they are contracted to work.
• The contractual provisions state that the contract is not a contract for services between the employer and the individual’s own business
• The contract provides for employee benefits such as holiday pay, sick pay, notice, fees, expenses etc.
• There is mutual obligation set down in the contract to provide or do the work
• The individual does not incur any financial risk in carrying out the work.

If you think these duties may apply to you, or are unsure as to whether you employ a personal services worker; contact us.