Auto-enrolment – the exemption for workers outside the UK

Companies will need to look carefully at their workforce and decide whether or not each category of workers is entitled to pension membership and contributions. There are some legal uncertainties in this area, and companies should consider the legal status of the workers before reaching a judgement on whether each group should be included.

This guide considers how the auto-enrolment requirement applies to workers who spend some time working outside the UK or who have been seconded to the UK from abroad.

Which workers are covered by auto-enrolment?

Employers must enrol 'jobholders' (subject to age and earnings thresholds) into a contributory pension scheme. When identifying whether someone is a 'jobholder', one question is whether the person "is working or ordinarily works in the UK under the worker's contract".

Workers who work wholly in the UK

It should be relatively easy to identify workers who work wholly in the UK. This will be the case if the worker's contract provides for them to be based at a location in the UK, and there is no simultaneous employment relationship outside the UK (i.e. the worker has not been sent to the UK from overseas, for example on secondment).

It does not matter whether the worker is a UK national or not.

Workers who ordinarily work in the UK

Where a worker is not wholly working in the UK, the employer will need to identify whether the worker "ordinarily" works in the UK. In its guidance (26-page / 436KB PDF) the Pensions Regulator has stated that the primary issue to be considered is where the worker is based. It says that the starting point for determining where a worker is based will be "what the worker's contract of employment says and also how the contract is operated in practice". The guidance broadly summarises the case law that has developed in this area in relation to similar questions of worker location.

Further matters for the employer to consider include:

• where the worker begins and ends their work;
• where their private residence is or is intended to be;
• where the worker's headquarters is;
• whether they pay National Insurance contributions in the UK;
• what currency they are paid in.

Workers moving into the UK from overseas

If a non-UK employer sends workers to work in the UK, it will need to consider whether the worker's base remains outside the UK. If it does, the person will not be regarded as "ordinarily working in the UK". Points to consider include:

• whether the worker's contract remains with the employer located outside the UK;
• whether there is an expectation that the worker will return to the non-UK employer at the end of their placement.

Workers moving overseas from the UK

If workers move overseas from the UK, the employer will need to consider whether the worker's base remains in the UK. If so, the worker will still be regarded as "ordinarily working in the UK". Areas to consider here include:

• whether the worker's contract remains with the employer located in the UK;
• whether there is an expectation that the worker will return to the UK at the end of their placement.

Offshore workers and seafarers

There are particular considerations for companies that employ offshore workers or seafarers. The Pensions Regulator has given guidance (26-page / 436KB PDF) on the way that the rules apply for those groups of workers.  Companies will need to follow the detail of that guidance and the law which underpins it.

How can employers limit the risks?

The Pensions Regulator acknowledges in its guidance that there is not a fully-developed set of legal rules that employers can follow to identify whether someone is "ordinarily based in the UK". The Regulator expects the UK courts to make decisions about exactly how employers should interpret this phrase.  It is certainly true that court decisions might be made over time, but employers will still need to make policy decisions in the meantime.

Employers should follow the guidance the Regulator has given as a starting point. In clear cut cases this may suffice. However, where there is an element of uncertainty about a worker's location, legal advice will be needed to decide how the auto-enrolment process should be handled and to assess any associated legal risks.