Auto-Enrolment Pensions: What Employers Must Do by Law

‍‌‌​‌​‌​‌​‌‌‌‌‌​‌‌​​​​​​‌‌‌​‌‌​‌‌‍SiteKiln gives you plain-English information, not legal advice. If you need advice specific to your situation, talk to a qualified accountant or pensions specialist.

The short version

From the day your first member of staff starts, you have pension auto-enrolment duties as an employer. If they're aged 22 to State Pension age and earn over £10,000 a year, you must put them into a workplace pension and pay in at least 3% of their qualifying earnings, with total minimum contributions of 8% (your bit plus theirs).

Why it matters

The Pensions Regulator can fine small employers who ignore auto-enrolment, and they do -- it's not an empty threat. Get it right once, with a simple scheme and payroll that talks to it, and taking on your second or third person is easy; bodge it and every payday is a stress test.

Under the Pensions Act 2008, every UK employer must automatically enrol eligible workers into a qualifying workplace pension and pay contributions. For a small builder, your "duties start date" is the day your first employee starts work -- that's when your legal obligations kick in.

5.10.1 When auto-enrolment applies

• You count as an employer if you deduct PAYE tax and NI from someone's wages -- even if it's just one labourer or office admin.

You must automatically enrol a worker if all of these are true:

• They're classed as a "worker" (basically on your payroll, not a genuine self-employed sub).
• They're aged 22 or over but below State Pension age.
• They earn at least £10,000 a year from you (around £833 a month).

If they earn less than that but above a lower band (around £6,000+), they can opt in and, if they do, you must still contribute. If they're under 22 or over State Pension age, they have the right to join a scheme, but you might not have to auto-enrol them or pay employer contributions depending on their pay.

5.10.2 Your duties from day one

From your duties start date (first employee's first day):

Assess your worker

• Check their age and earnings to see if they're an "eligible jobholder" for auto-enrolment.

Choose and set up a pension scheme

• Pick a qualifying workplace pension (for example NEST or another provider used to small employers).
• Make sure it meets auto-enrolment rules on contributions and charges.

Enrol eligible workers and start contributions

• Put them into the scheme and start contributions from their first day (you can postpone for up to 3 months -- see below).
• Send them a formal letter explaining they've been enrolled, what it costs, and their right to opt out.

Tell The Pensions Regulator

• Complete a declaration of compliance within five months of your duties start date, confirming what you've done.

You must also keep records (who you assessed, who you enrolled, what you paid in), and you'll have re-enrolment and re-declaration duties every three years.

5.10.3 Contributions -- what actually goes in

For most basic schemes using "qualifying earnings", minimum contributions are:

• Employer: at least 3% of qualifying earnings.
• Employee: enough to get total contributions up to 8% (usually 5% from them if you're at the 3% minimum), with tax relief helping top it up.

Qualifying earnings are banded -- only earnings between lower and upper limits count -- but your provider and payroll software will calculate it for you. Some employers choose to be more generous (for example, 5% employer, 3% employee) to keep things simple and more attractive.

5.10.4 Postponement and getting set up

You can postpone auto-enrolment for up to three months for some or all staff:

• Useful if you want to avoid setting everything up for someone who might only be with you a few weeks.
• You must write to the worker within six weeks of them starting, telling them you're postponing and the date you'll assess/enrol them.
• During postponement, workers can still choose to opt in, and if they do, you must set up the scheme and pay contributions from then.

In practice, a simple path for a first-time employer is:

• Talk to your accountant or payroll provider.
• Pick a pension provider they're comfortable with.
• Line up payroll so it can calculate contributions and send data to the pension each pay run.

5.10.5 What happens if you ignore auto-enrolment

The Pensions Regulator has teeth:

• They'll usually start with reminders and improvement notices if you're late or non-compliant.
• If you ignore them, they can issue a fixed penalty (often £400) and then daily fines -- even small employers can be charged hundreds a day if they carry on not complying.
• You may also have to backdate pension contributions for staff you should have enrolled, including your own employer share.

It's much cheaper to set up a simple scheme and run it properly than to dig out of that hole later.

First month as an employer -- quick checklist

Use this the moment you decide to put someone on the books.

• Confirm they're an employee, not a sub -- check you're putting them on PAYE and they're not genuinely self-employed.
• Register as an employer with HMRC -- get your PAYE reference and set up payroll (or ask your accountant to).
• Work out your pension duties date -- usually their first day of work; that's when your auto-enrolment duties start.
• Choose a workplace pension provider -- pick a simple, auto-enrolment-ready scheme (for example NEST or a similar provider used to small employers).
• Decide on postponement or not -- either enrol them straight away, or formally postpone up to 3 months and send the required postponement letter within 6 weeks.
• Switch payroll on for pensions -- make sure payroll is set to: assess ages/earnings, calculate contributions, produce files for the pension scheme every pay run.
• Give them the right letters -- auto-enrolment/enrolment or postponement letters, plus general pension info (your provider often has templates).
• Complete your declaration of compliance -- tell The Pensions Regulator what you've done within 5 months of your duties start date.

Next time you hire, most of this is already in place -- it's just assessing the new person and enrolling them through the same setup.

What to do next

• If you are about to take on your first employee, talk to your accountant or payroll provider about pension duties before their first day.
• Choose a qualifying workplace pension (NEST is simple and set up for small employers).
• Make sure your payroll software can calculate pension contributions and send data to the scheme each pay run.
• Complete your declaration of compliance with The Pensions Regulator within five months of your duties start date.

Sources and legislation

• Pensions Act 2008 -- automatic enrolment duties for employers. legislation.gov.uk/ukpga/2008/30
• Social Security Contributions and Benefits Act 1992 -- NI and earnings thresholds. legislation.gov.uk/ukpga/1992/4
• Income Tax (Earnings and Pensions) Act 2003 -- PAYE and employer obligations. legislation.gov.uk/ukpga/2003/1

Related guides on this site

• 5.9 National Insurance gaps
• 5.1 Registering as self-employed for construction
• 8.1 Sole trader vs limited company -- honest comparison
• 15.5 Taking on your first employee
• S9 Setting up as a sole trader -- step by step

This topic is sponsored by The Online Accountant.

www.theonlineaccountant.com/?utm_source=sitekiln&utm_medium=sponsor&utm_campaign=tax-section →

SiteKiln's editorial team writes every guide independently. Sponsors do not review, edit or sign off on content. See our editorial standards.

Spotted something wrong or out of date? Email us at hello@kilnguides.co.uk.

In crisis? Samaritans 116 123 · Mental health support