Workplace Pensions and Auto-Enrolment for Small Employers

If you employ even one member of staff, you almost certainly have legal duties around workplace pensions. Auto-enrolment — introduced under the Pensions Act 2008 — requires every UK employer to automatically enrol eligible workers into a qualifying pension scheme and make contributions on their behalf. Ignoring these duties can result in substantial fines from The Pensions Regulator (TPR).

What Is Auto-Enrolment?

Auto-enrolment means you must enrol qualifying employees into a workplace pension without waiting for them to ask. Workers can opt out, but only after they have been enrolled — you cannot encourage or induce opt-outs. Once enrolled, you must make employer pension contributions on their behalf every pay period.

The scheme applies to virtually all employers in the UK regardless of size. If you are a sole trader employing staff, a limited company director with employees, or a partnership with workers, you have duties to assess and act upon.

Who Must Be Auto-Enrolled?

Not every worker is treated the same. TPR divides workers into three categories based on age and earnings:

Category Age Earnings (2025/26) Your Obligation
Eligible Jobholder 22 to State Pension age Over £10,000 per year Must be auto-enrolled
Non-Eligible Jobholder 16–21 or State Pension age to 74 Over £6,240 and up to £10,000; or any age earning £6,240–£10,000 Can opt in — you must enrol and contribute if they request it
Entitled Worker 16 to 74 Under £6,240 Can join a scheme — you must facilitate but are not required to contribute

Earnings thresholds are reviewed each tax year. Always check the current figures on the TPR website or GOV.UK before making assessments.

Workers Who Are Excluded

Some individuals are exempt from auto-enrolment duties entirely, including:

  • Sole directors with no other employees (the sole director is both employer and worker — no auto-enrolment duty arises)
  • Workers who have given notice to leave, or to whom you have given notice
  • Workers who have already given notice of intent to draw or are already drawing their pension from the scheme you would enrol them into
  • Workers covered by TUPE who have been automatically enrolled within the previous 12 months and opted out

Minimum Contribution Rates

Contributions are calculated on qualifying earnings — currently the band between £6,240 and £50,270 per year (the lower and upper thresholds for 2025/26). Contributions are not calculated on total pay — only on the earnings within this band.

Contributor Minimum Rate Example on £25,000 salary
Employer 3% of qualifying earnings 3% of (£25,000 − £6,240) = 3% × £18,760 = £562.80/year
Employee 5% of qualifying earnings (includes tax relief) 5% × £18,760 = £938.00/year
Total 8% minimum £1,500.80/year into the pension pot

You may choose to contribute more than the minimum, or to use a different earnings basis (such as total pay) provided it meets the certification test set out in legislation. Many employers simply use the qualifying earnings band to keep administration straightforward.

Choosing a Pension Scheme

You must use a pension scheme that meets TPR's qualifying criteria. As a small employer you have several options:

NEST (National Employment Savings Trust)

NEST is a government-backed workplace pension scheme specifically designed with small employers in mind. Key features:

  • Free to set up — no setup or ongoing administration charge for employers
  • Legal duty to accept any employer — NEST cannot turn you away
  • Online portal for enrolling workers, submitting contributions, and managing opt-outs
  • Workers pay a 0.3% annual management charge on their pot, plus a 1.8% charge on each contribution (no charge to employer)
  • Compatible with most payroll software packages

For most micro-businesses and new employers, NEST is the simplest and lowest-cost starting point. You can register at nestpensions.org.uk.

Other Qualifying Schemes

Alternatives include providers such as The People's Pension, NOW: Pensions, Smart Pension, and most major insurers (Aviva, Legal & General, Royal London, Standard Life). These may offer lower ongoing member charges or more investment options, but some have minimum workforce size requirements or employer fees. Compare providers before committing, especially if you expect to grow your headcount.

Your Step-by-Step Duties

  1. Identify your duties start date — the date your first eligible worker starts. If you already have staff, this date has already passed and you must act immediately.
  2. Assess your workforce — categorise each worker as an eligible jobholder, non-eligible jobholder, or entitled worker based on age and earnings every pay period.
  3. Choose and set up a qualifying pension scheme — register with NEST or another provider before your duties start date.
  4. Write to your workers — within six weeks of their start date (or your duties start date), inform each worker in writing which category they fall into and what their rights are.
  5. Auto-enrol eligible jobholders — enrol them on their first day of eligibility; do not delay.
  6. Process contributions — deduct employee contributions from net pay each pay period and pay both employee and employer contributions to the pension scheme, usually within 22 days of the end of the pay period.
  7. Handle opt-outs — if a worker opts out within one month of enrolment, refund their contributions and remove them from the scheme. Keep records of opt-outs.
  8. Complete your Declaration of Compliance — tell TPR what you have done within five calendar months of your duties start date. This is done online at TPR's website.

Re-Enrolment

Every three years from your duties start date you must re-enrol any workers who previously opted out or who ceased active membership. This is called your re-enrolment date. You choose a specific date within a six-month window (three months before to three months after the third anniversary) that suits your payroll cycle.

After re-enrolment you must submit a new Declaration of Compliance to TPR. Workers can opt out again immediately after being re-enrolled — the process then repeats every three years.

Record Keeping

You must keep records for at least six years (two years for opt-out notices). Records to retain include:

  • Names and dates of birth of all workers assessed
  • Dates of enrolment and any opt-out or opt-in requests
  • Contribution amounts paid per worker per pay period
  • Letters sent to workers and copies of any scheme joining information
  • Your Declaration of Compliance reference number

Penalties for Non-Compliance

TPR takes auto-enrolment seriously. Penalties range from fixed penalty notices of £400 for failing to complete your Declaration of Compliance, to escalating daily penalties of £50–£10,000 per day depending on the number of employees, for continued non-compliance. Deliberately inducing opt-outs or providing false information to TPR can result in civil penalties of up to £5,000 for individuals or £50,000 for organisations.

Getting Help

Most small business accountants and payroll bureaux can manage auto-enrolment on your behalf as part of their payroll service. If you run your own payroll using software such as Xero, QuickBooks, or Sage, the auto-enrolment assessment and contribution upload is usually handled within the payroll run. NEST also offers a free employer helpline for businesses setting up for the first time.

Further guidance is available from:

Frequently Asked Questions

Yes — auto-enrolment applies to all employers with at least one eligible worker. If your employee is aged 22–66 and earns over £10,000 per year from you, you must automatically enrol them in a qualifying pension scheme and contribute a minimum of 3% of their qualifying earnings.

3% of qualifying earnings (the band between £6,240 and £50,270 per year). Employees contribute a minimum of 5% (including tax relief), making the total minimum contribution 8%. You can contribute more than 3% if you wish, but 3% is the statutory minimum.

NEST (National Employment Savings Trust) is a government-backed workplace pension scheme with no setup costs or ongoing charges for employers. It accepts businesses of any size, including those with just one employee, making it the default choice for many small UK employers.

For new employers, the duty to auto-enrol begins on the first day your first eligible employee starts work — there are no staging dates for new employers since 2016. You must enrol eligible workers and file a Declaration of Compliance with The Pensions Regulator within 5 months of your duties start date.

The Pensions Regulator can issue a £400 fixed penalty notice for non-compliance. If you fail to comply after this, escalating daily fines apply: £50/day for 1–4 employees, £500/day for 5–49 employees. Criminal prosecution is possible in the most serious cases.