From 1st October 2012, all companies who employ 250 or more employees will be required by law to include all those employees in a UK pension scheme. This change in legislation follows the 2011 Pension Reform Act and means that employers are legally required to pay into each employee’s pension plan. Employees can choose to ‘opt out’ but they must do this themselves; an employer cannot do it for them, or be seen to assist them to opt out. The employees will also be ‘re-enrolled’ back into the pension scheme automatically every three years.
For freelancers, contractors, and temporary staff, how they are paid for their services will depend on whether or not they get automatically enrolled in the scheme. For example, workers who are paid their wages through an agency using PAYE, will be automatically signed up and the agency forced to pay into their pension. Contractors who are paid through their own personal limited company, will be exempt.
Lorraine Adams, Head of the Employment Department with QualitySolicitors Talbots considers what flexible workers should be thinking about to prepare for the changes.
“Planning and knowledge will be essential for the flexible work force when the new pension law is implemented. The changes mean that each hour of a flexible worker’s time will cost agencies and ultimately employers more. This might result in a fall in salary or fewer hours booked.”
“As a flexible worker, you may feel pressured by the agency/employer to ‘opt out’ of the scheme to get more hours or a greater rate of pay. Any company found taking this stance could be fined for non-compliance. So, if any flexible worker or even a permanent employee feels incentivised to ‘opt out’ of the scheme, they should seek legal advice on the steps they could take to challenge this behaviour.”
“More widely, it may be that more contractors and/or freelancers set up personal limited companies in order to avoid paying into a pension – especially if they work through several different agencies and don’t want to end up with several different small pension schemes. However, this will tend to be done by those specialist flexible workers earning strong wages, as opposed to those more vulnerable workers earning minimum hourly rate. It is the latter especially who should be made aware of their rights.”