The rules on how and when company directors are exempted from automatic enrolment are not always fully understood.
An individual who is a director of a company is not classed as a worker (and the company is therefore not subject to the employer duties in relation to this individual) unless:
1. the individual works for the company under a contract of employment
2. there is at least one other person working for the company under a contract of employment.
This exemption can apply to more than one director working for the same company – each director must be considered individually.
So, a director who is not working under an employment contract is never classed as a worker.
For the avoidance of doubt if someone is given the title ‘director’, but does not carry out the duties one might expect a director to perform and so is a ‘director’ in name only, then they would not be considered a director under the law and the AE exemptions would not apply.
However, an individual who is not a director (who may or may not be considered as self-employed for tax purposes) could be assessed as a worker for the purposes of the automatic enrolment duties,
they provide work or services to the company personally, which means:
the employer expects them to perform the work themselves, and
they cannot sub-contract the work or send a substitute (unless they are unable to perform the work, e.g. due to sickness).
They are not undertaking the work as part of their own business, which means that most, or all, of the following statements are true: if the employer…
has control over an individual’s method of work (eg hours worked);
provides employee benefits;
bears all the significant financial risks in carrying out the work (eg the worker is not financially responsible for faulty work);
provides what is required for the individual to carry out the work.
... but this list is not exhaustive, an employer must take into account all relevant considerations and make a reasonable judgement.
So, the exemption depends on understanding the legal arrangements under which any particular individual works for the company. There are four possible types of contract mechanisms:
1. No contract. An individual may hold the office of director and carry out the statutory duties required by the Companies Act 2006 without having a contractual relationship with the company at all. A director in this position is never classed as a worker.
2. Contract to provide work or services to the company personally and they are undertaking the work as part of their own separate business. An individual in this position is never classed as a worker, whether they are a director or not.
3. Contract to provide work or services personally, but not as part of the individual’s own separate business. Ordinarily an individual in this position is classed as a worker. But a director working under this kind of contract is never classed as a worker.
4. Contract of employment. Ordinarily an individual in this position is a worker. A director working under this kind of contract is only classed as a worker if there is at least one other person also working for the company under a contract of employment.