Are director-only businesses exempt from auto-enrolment?

As usual with rules and regulations, this is quite a complex area. You can spend significant time trying to identify if you are required to establish a qualifying workplace pension scheme for auto-enrolment. This time could be much better spent on running your business!

The key rules you need to consider:

Director-only businesses

If you don’t have any staff other than directors, you may not have any automatic enrolment duties. You won’t have any duties if the only people working for you are: you as the sole director; a number of directors, none of which has an employment contract; or a number of directors, only one of which has an employment contract. Automatic enrolment will apply if more than one director has an employment contract. In that case, the company will have auto-enrolment duties for those directors who have employment contracts.

What if you have a company secretary or other office holders?

If you only have directors and an office holder (for example, a company secretary or non-exec director) then, provided any such office holder does not have an employment contract, and does not usually receive a ‘salary’ for their services, they are not a worker. Therefore, provided no more than one of your directors has a service contract, the business remains exempt.

The office holder can be on the payroll (and still not be considered to be a worker) – but only for payment of fees for their services and/or their expenses, rather than a salary – so it is important to consider the circumstances in each case. For example, sometimes a person who appears to be an office-holder may also have a contract of service for part of their duties and will therefore be a worker in respect of those duties.

If the company secretary has a contract of employment then the business is subject to auto-enrolment and has duties to that company secretary, and also to any director who has an employment contract (but not to any other directors without a contract).

What if you have low-paid employees?

If you also have some staff, but they are all earning less than the earnings trigger (currently £10,000p.a.) then you don’t need to auto-enrol anyone; however the business still has duties to those employees so you must provide them with information about their right to opt in or join a scheme (and make a declaration of compliance to the Pensions Regulator (TPR)). However, you don’t need to actually set up a scheme until one of your staff chooses to opt in or join.

What do exempt businesses need to do?

You do not need to apply for the exemption unless you receive a letter from The Pensions Regulator (TPR) informing you of your staging date. In these circumstances, you should email them at [email protected] If your circumstances change so that automatic enrolment duties apply to you, you’ll need to inform TPR of this as soon as possible. For example, if you take on a member of staff other than a director, or if at least two directors start working for you under contracts of employment.