Doctors ruling ups AE worker cost for employers

Certain categories of self-employed people are now legally defined as workers in the eyes of the law, following a High Court ruling on Hospital Medical Group.

This means companies that contract such individuals will have to auto-enrol more people into pension schemes than previously thought.

There are approximately 3.9m self-employed people in the UK, according to the Department for Business, Innovation and Skills (Bis).

Out of that number, those working on a contract basis – previously considered self-employed so not eligible for auto-enrolment – are now eligible.

But Bis does not have a figure for how many people fall into this bracket.

Employers not aware of this, and that fail to inform schemes about the changes, could prevent eligible workers from being enrolled.

Rosalind Connor, partner at law firm Taylor Wessing, said: "Schemes need legal advice and to sit down with their employer and see what the situation is with people that contract in."

Companies and schemes are at risk from fines of more than £50,000 by the Pensions Regulator if they do not enrol all eligible workers.

Schemes could also be sued at a later date by unsatisfied members who feel they have missed out on pension contributions.

Self-employment confusion 

Two cases, one in an employment tribunal and another in the Court of Appeal, considered whether a self-employed hair transplant surgeon was a worker.  

Dr Colin Westwood, a general practitioner from Timperley in Cheshire, claimed he was eligible for sickness and holiday pay. 

Westwood also worked for the HMG, a private practice for cosmetic and obesity treatment, as a hair-transplant surgeon. 

He joined HMG in 2005. His work was carried out on a self-employed basis as he had a contract to treat the private practice's clients. 

There is an issue for companies that have a bunch of independent contractors

Rosalind Connor, Taylor Wessing

When his contract with the group was terminated in 2010, Westwood sought advice from an employment tribunal for "unlawful deductions in pay".

The tribunal supported the doctor's claims, finding he was technically a worker, as HMG had employed him to treat its clients.

When HMG took the case to the Court of Appeal, Lord Justice Maurice Kay agreed with the tribunal. The judge said the case rested on whether Westwood was a worker.  

"If he is, it is common ground that he is entitled to a substantial sum of money in respect of unlawful deductions and accrued holiday pay," he said. 

HMG is in the process of seeking an appeal to the Supreme Court on the decision.

How to minimise potential fines 

Schemes will struggle to get their auto-enrolment administration in place in time if they are not made aware promptly of any changes to numbers of eligible workers.

To prepare for the staging dates and comply with legislation, schemes must be aware which employees the employer recruited from April 2011. 

Connor added: "There is an issue for companies that have a bunch of employees and a bunch of independent contractors."

She said companies needed to start "thinking seriously" about whether those contractors needed auto-enrolling.

A case could have [a number of] years of pensionable employment to back-date

Kevin LeGrand, Buck

Schemes with high proportions of members employed on an independent contract basis should not assume those employees do not need enrolling. 

Instead, schemes should contact employers six months in advance of the present staging date and check for any changes, Connor said. 

If a scheme is aware, member communications around the changes can be amended in time and the fund structure planned thoroughly. 

A good audit trail will protect schemes should the regulator dispute benefits provided at a later date. 

Kevin LeGrand, head of pensions at Buck Consultants, said: "It could be a considerable time before anyone comes along to check the trail.

"A case could have [a number of] years of pensionable employment to back-date."

LeGrand said schemes would have to show they had thought about who was eligible, taken advice and recorded thoroughly in meeting minutes what the decision was and why they took that decision. 

He added: "Trustees need to understand there is this group of people with this particular employer for whom it was not a black and white decision and why the company has taken [a particular] view."

If in doubt, schemes could auto-enrol everyone they suspect might be eligible. But they may not be able to afford such a strategy.

To prevent future disputes, administrators can make sure minutes are well-recorded, decisions justified and the communication with the employer is clear.

"This is one of the early cases and there will be a lot more," LeGrand added.