As a business owner, you are probably aware that you must automatically enrol eligible employees into a workplace pension scheme. Here we look at how the auto-enrolment pension rules work, and explain why many small companies are exempt.
What is auto enrolment?
Under the Pensions Act 2008, UK employers are legally required to put qualifying employees into a workplace pension scheme, and make employers’ contributions to each worker’s pension pot.
Who needs to be enrolled on the scheme?
If you are running a business with any employees, how do you work out which members of staff should be enrolled into a workplace pension scheme?
- Firstly, they must meet the statutory definition of a ‘worker’. Most traditional employees will meet this definition.
- Secondly, they must be aged between 22 and the state pension age, and earn more than £10,000 a year.
- Finally, each worker must usually work in the UK.
State pension age is currently 66 for most people, but use the GOV.UK state pension age calculator to confirm, as it’s rising over time.
You can read more detailed official advice here.
What if you don’t have any staff?
The automatic enrolment obligations don’t apply to your company (or you, as an individual), if you are not considered to be ‘an employer’ for the purposes of this legislation.
If your company meets any one of the following criteria, then the pension rules will not apply:
- You are the sole director of your limited company, with no other employees.
- Your limited company has 2 or more directors who do not have employment contracts, and the company has no other employees.
- Your limited company has 2 or more directors, one of whom has an employment contract, and no other employees.
- Your company has been dissolved, ceased trading, or gone into liquidation.
The employment contract distinction is important. If at least two directors have employment contracts, or the company takes on other staff, automatic enrolment duties may apply. See The Pensions Regulator’s guidance for company directors.
If The Pensions Regulator contacts your company but you believe automatic enrolment duties do not apply, you may need to tell TPR about your circumstances rather than simply ignoring the correspondence.
When were the auto-enrolment rules rolled out?
Since October 2012, staging dates have been rolled out to ensure businesses of all sizes allow their employees to benefit from the scheme.
The UK’s largest companies were the first to comply with the auto-enrolment regulations from 2012 onwards, followed by smaller employers.
The final staging date for new employers was 1st February 2018. This included all ‘small’ businesses.
How do you work out the pension contributions?
By law, a minimum total contribution of 8% of qualifying earnings must normally be paid into the scheme, of which at least 3% must come from the employer.
The earnings band changes each tax year, but for 2026/27, the qualifying earnings band is frozen at £6,240 (lower) to £50,270 (upper) of gross earnings.
When you make the calculation, you must include the following in each employee’s gross pay:
- Salary
- Commissions
- Overtime
- Bonuses
- Statutory Sick Pay, Maternity Pay, Paternity Pay and Adoption Pay
Here are the prorated thresholds for common pay periods:
| Pay Reference Period | Lower Qualifying Earnings | Earnings Trigger | Upper Qualifying Earnings |
|---|---|---|---|
| Annual | £6,240 | £10,000 | £50,270 |
| Weekly | £120 | £192 | £967 |
| Monthly | £520 | £833 | £4,189 |
When you contribute to an employee’s pension, the employee also normally contributes. For example, if the employer contributes the minimum 3%, the employee contribution and tax relief will normally make up the remaining 5% needed to reach the 8% total minimum. An employer can choose to contribute more than 3%.
Take control of your company pension with the ii SIPP
Pay pension contributions from your limited company into an interactive investor SIPP and manage your savings in one place.
- Low flat fee from £5.99 a month
- Combine existing pensions into one SIPP
- Choose from a wide range of investments
Is it possible to opt out of the workplace pension?
As an employer, you can’t opt employees out of the workplace pension scheme – and it is illegal to encourage them to do so.
However, employees may wish to opt out. An automatically enrolled employee normally has a one-month opt-out period. If they opt out during this period, contributions already paid are refunded.
After the opt-out period, an employee can still leave the scheme, but whether contributions are refunded depends on the pension scheme’s rules.
Employers must also generally re-enrol eligible staff who have opted out or stopped contributing approximately every three years. The employee can opt out again if they wish.
How do you choose a workplace pension provider?
If you are required to set up a workplace pension for your limited company, where do you start?
When looking for a provider, here are some things to bear in mind:
- There may be minimum employee requirements for the scheme (e.g., you must have 5 or more employees).
- How much are the provider’s initial setup fees and ongoing annual fees?
- How are your employees’ funds going to be invested? You might have ethical or other preferences for funds.
Many smaller companies have joined the Government’s own NEST scheme. This is a simple way to set up a workplace pension and ensure you’re compliant with the rules.
Find out more about your pension options
If you are a limited company director interested in finding out your own pension options, read our guide to paying into a pension from your limited company.
You can also compare company vs personal pension contributions and use our company pension contribution tax savings calculator.
For the full official government advice covering workplace pensions, visit GOV.UK.