Auto-Enrolment (Workplace Pensions)

The auto-enrolment earnings trigger is £10,000 per year; only earnings between the lower qualifying earnings band (£6,240) and the upper band (£50,270) count as qualifying earnings for contribution purposes. The total minimum contribution is 8% of qualifying earnings, with at least 3% from the employer and the remainder from the worker and tax relief. Workers can opt out within one month of enrolment and receive a refund of contributions, but must be re-enrolled every three years. The Pensions Regulator (TPR) enforces compliance; employers who fail to enrol workers or make contributions face escalating fixed and daily penalties. Under the Pensions (Extension of Automatic Enrolment) Act 2023, the Government plans to lower the age threshold to 18 and remove the lower earnings band — the implementation date is yet to be confirmed.

In practice, auto-enrolment duties start the moment you take on your first member of staff, not when your business reaches a certain size. You get a duties start date, you must assess every worker on that date and on every subsequent pay day, write to them about what you have done, and complete a declaration of compliance with The Pensions Regulator within five months. Missing the declaration is the single most common breach, and it triggers a fixed penalty even where the pension itself was set up correctly.

Worked example: Ravi hires his first employee on a salary of £24,000. She is 30, so she is an eligible jobholder and must be put into a qualifying scheme automatically. Qualifying earnings are the slice between £6,240 and £50,270, so contributions are calculated on £17,760 rather than on the whole salary. Ravi pays at least 3% of that band and the employee makes up the balance to 8% with tax relief. When she asks to opt out a fortnight later, Ravi does not process it himself — he directs her to the pension provider, because an employer who induces or handles an opt-out risks an enforcement notice.

The misconceptions cluster around who counts. Workers aged 16 to 21 or over State Pension age, and those earning between the lower band and the trigger, are not enrolled automatically but can ask to join and must still receive employer contributions if they are entitled non-eligible jobholders. Directors with no employment contract may be exempt, but a company with two or more contracted directors usually is not. And opting out is not permanent: re-enrolment comes round roughly every three years and must be repeated even for people who opted out last time.

Auto-enrolment runs through the same payroll as PAYE and National Insurance, and interacts with the National Minimum Wage, because pension deductions must not take pay below the statutory floor. If you are about to take on staff, read our guides to workplace pensions and auto-enrolment and hiring your first employee together, in that order.