What is auto-enrolment?
Auto-enrolment is the UK law requiring employers to put eligible workers into a workplace pension automatically and pay contributions, unless the worker chooses to opt out.
What auto-enrolment means
Every UK employer has duties under workplace pension law from the day its first member of staff starts work. Workers who are aged between 22 and State Pension age and earn over £10,000 a year must be enrolled automatically into a qualifying pension scheme. They can opt out, but the employer cannot encourage them to.
Other workers can ask to join. Those earning above the lower limit of the qualifying earnings band can opt in and receive employer contributions; lower earners can join without them.
Minimum contributions
Contributions are worked out on qualifying earnings, the band of pay between a lower and upper limit (£6,240 and £50,270 in recent years). The legal minimum total is 8%, of which the employer must pay at least 3%. The employee's 5% includes tax relief.
Example
A café employs Sam on £24,000 a year. Qualifying earnings are £24,000 − £6,240 = £17,760.
| Rate | Annual amount | |
|---|---|---|
| Employer contribution | 3% | £532.80 |
| Sam's contribution (including tax relief) | 5% | £888.00 |
| Total into pension | 8% | £1,420.80 |
The employer's £532.80 is an allowable business cost and is not subject to National Insurance.
Employer duties
- Choose a qualifying scheme, such as NEST or a commercial provider
- Assess every worker each pay period and enrol eligible staff
- Write to staff about their pension within six weeks of their start date
- Deduct and pay contributions on time
- Complete the declaration of compliance with The Pensions Regulator within five months of your duties starting
- Re-enrol staff who opted out every three years and re-declare
Company directors
A company whose only staff are directors without employment contracts usually has no auto-enrolment duties, but it must tell The Pensions Regulator. As soon as one director has a contract of employment or you hire an employee, the duties apply.
Why it matters for your business
The Pensions Regulator enforces the rules with fixed penalties and escalating daily fines for late compliance. Payroll software can assess staff and send contributions automatically, so the simplest approach is to set it up correctly from the first payroll. Pension contributions can also be paid through salary sacrifice, which saves National Insurance for both sides.
Common questions
Not if you are the only person working for the company and have no employment contract. You still need to tell The Pensions Regulator you have no duties. Directors can choose to have the company make pension contributions, which are often very tax efficient.
They are not automatically enrolled, but they can ask to join. If they earn above the lower limit of qualifying earnings, the employer must contribute if they opt in. Below that, they can join but the employer does not have to pay in.