Freelance workers based in the UK have a lot of rights but did you know they have a right to join your workplace pension scheme and must be included in your auto-enrolment?
It sounds a bit daft on the face of it, but here is how it goes for workers based in the UK:
- workers earning less than £6,136 a year have the right to join but you don’t have to make ’employer minimum’ contributions.
- workers earning £6,136 or more a year have the right to join your workplace pension scheme and you must contribute if they do
- workers earning £10,000 or more must be automatically enrolled (unless opted out) and you must contribute
My freelancers are self employed
If you’re thinking – what has this got to do with me as my freelancers are all self-employed? – then you could be in for a shock.
Freelancers can be running their own business, but they can also be categorised as workers (or even employees). Your label on the relationship does not define their status. Nor does the fact they invoice you, or have other clients, always help.
If they don’t have a company and are invoicing you in person there is a risk your freelancer will be categorized as a worker and this may trigger their entitlements.
How to handle freelancers and workplace pensions
- Check whether they are invoicing you via a company or just using a business name
- Check the freelancer’s base – are they working from the UK?
- Check whether you have a written contract with them
- Get that contract reviewed to establish the status
- If no written contract or agreement exists (or an out of date one) update it to properly reflect the arrangements between you. Here’s a link to ours.
- Talk to your accountant/payroll/pensions provider and let the know you have potential workers who may be eligible
- Talk to us about how to contract and manage your freelancers in a way that is appropriate for your business
Want a free contract review?
If you are paying a UK based freelancer and not sure if they are a worker or running their own business let us check it out
This Post Has 3 Comments
Good afternoon
I have couple of questions in relation to the article above and i would be grateful if someone can get back to me regarding the two questions below.
1. In my opinion one person can not have more than once status, there are either employees, workers or self-employed. Reading the article my understanding is that where freelancers who in fact should be workers based on the circumstances rather than the contract they have, should be considered for Pension contributions. Is this correct?
2. If pension applies to freelancers irrespective/not subject worker status, how would that be processed when they are not going through our payroll system?
If you an clarify the above will be very useful, i think the main point for me is to clarify if pension applies only when we have established that someone should be a worker rather than self employed, as we already know that workers are entitled to pension and how is that related to the amount they earn.
Thank you
Vesna
Hi Vesnacoul
1. It is not the person but the contract the person is working under that has a status. I could, for example, have a Saturday job at Tesco’s where I was an employee and be a self-employed graphic designer (though with my visual sense I assure you). Just as a person can have more than one job at the same time, they (as a person) can have more than one status. But they can only have one status within a given con
2. If their status is correctly construed as worker by applying the appropriate tests, then they are eligible to join your pension scheme. My belief is that they are not automatically opted in unless opted out (which is for employees) but if they ask to join they should be able to.
3. You would make the necessary deductions from the invoice they submit. It would not run through payroll but the purchase ledger. As the worker in question would have asked you to do this by making a request to join and you would have clarified who was contributing what, it might be a good idea at that point to clarify that these will be deducted from sales ie invoice payments, and what contribution you are making.
You should consult your own payroll and pensions advisor since not every scheme runs in the same way and you should also review your contractor’s status against current HMRC and employment status tests to make sure you have not accidentally managed some in such a way that they can be more accurately viewed as employees. It happens more easily than you might think. You will also want to review your self-employed suppliers to make sure they have not accidentally slipped into worker status. For those invoicing through a limited company, you should check their status against the pending rollout of IR35 deductions in the private sector that is due next April.
Hope this helps. This is as clear as I can get it, but there is a lot of detail in the various regulations that means you should take advice on your particular workers/contracts/pension scheme rather than rely on our webchat.
1) A person can have only one status per contract – but a person can have more than one contract. I could have a part-time job as an employee for example and run my own business on a self-employed basis.ssue is the status of the person within a particular contract.2) You need to ask your payroll software provider and pension provider. That will depend on whether your software is set up to handle workers as well as employees and how it does it.