Workplace Pensions and Auto-Enrolment: What Small Employers Need to Know
Auto-enrolment applies to every UK employer — including those with just one member of staff. Most small employers understand the basic obligation; it’s the details — who qualifies, how contributions are calculated, what happens when an employee opts out, and the re-enrolment rules — that are where things can go wrong. Here’s what you need to know, with current 2026/27 figures throughout.
What is auto-enrolment?
Auto-enrolment is the legal requirement for employers to automatically enrol eligible employees into a workplace pension and make contributions towards it. Introduced in 2012, it transformed pension participation — rates rose from around 47% of eligible employees in 2012 to over 85% by the mid-2020s.
As an employer, auto-enrolment means you must:
- Assess your workforce to identify which employees qualify
- Automatically enrol eligible employees into a qualifying pension scheme
- Make minimum employer contributions
- Communicate pension rights to all employees, including those who don’t automatically qualify
- Manage opt-outs and maintain records
- Re-enrol opted-out employees every three years
Who qualifies for auto-enrolment?
The key categories for 2026/27:
| Category | Age and earnings | What you must do |
|---|---|---|
| Eligible jobholder | Aged 22 to State Pension age, earning more than £10,000 per year | Must be automatically enrolled — no choice |
| Non-eligible jobholder | Aged 16–21 or State Pension age–74 earning above £6,240; OR aged 22–State Pension age earning £6,240–£10,000 | Can opt in — if they do, you must make employer contributions |
| Entitled worker | Any age, earning below £6,240 per year | Can join the scheme — but you have no obligation to contribute |
Auto-enrolment contribution rates
The minimum contributions for 2026/27, based on qualifying earnings:
| Contribution | Minimum rate | What it applies to |
|---|---|---|
| Employer | 3% | Qualifying earnings — the band between £6,240 and £50,270 per year |
| Employee | 5% | Same qualifying earnings band (usually including pension tax relief) |
| Total minimum | 8% |
What are qualifying earnings?
Qualifying earnings are not the employee’s full salary — they’re the portion that falls within the band of £6,240 to £50,270 per year. For an employee earning £30,000, qualifying earnings are £23,760 (£30,000 minus £6,240).
Some pension schemes use total earnings or basic pay rather than qualifying earnings. This can simplify administration but typically results in higher contributions. Your pension provider can advise on which basis applies to your scheme.
Choosing a pension scheme
The government-backed scheme, designed specifically for auto-enrolment. Free to set up, no minimum employer size, low charges. The default choice for most small employers. Available at nestpensions.org.uk.
NOW Pensions, The People’s Pension, and Smart Pension all work well for small employers and must meet The Pensions Regulator’s standards. Worth comparing if NEST doesn’t suit your needs.
Offered by insurance companies and investment providers — Aviva, Legal & General, Royal London, Standard Life. Can offer more investment options and, sometimes, better terms for larger payrolls.
Setting up auto-enrolment: step by step
Your duties start on the day your first member of staff starts work — not when you get around to it. There is no grace period for new employers.
Select a qualifying scheme and set it up before your start date. NEST is the simplest option for most small employers and can be set up online in under an hour.
Work out which employees are eligible jobholders, non-eligible jobholders, and entitled workers. Your payroll software typically does this automatically based on age and earnings.
Eligible employees must be enrolled within six weeks of their start date. Don’t wait for them to ask — auto-enrolment means you act without prompting.
Within six weeks of your duties start date, write to every employee telling them about their pension rights — including those who don’t qualify for automatic enrolment. The Pensions Regulator provides free letter templates.
Pay contributions to the pension provider by the 22nd of the following month. Complete your declaration of compliance with The Pensions Regulator within five months of your duties start date — this is how they know you’ve met your obligations.
Opt-outs
Employees can choose to opt out of the pension scheme, but they must do so actively — the opt-out must come from the employee, not the employer.
Re-enrolment
Every three years, you must re-enrol any employees who have previously opted out or ceased active membership. This is one of the most commonly missed obligations for small employers.
Your re-enrolment date must fall within a three-month window either side of the third anniversary of your original duties start date. Re-enrolled employees can opt out again if they wish. You must also complete a re-declaration of compliance with The Pensions Regulator each time.
What happens if you don’t comply?
The Pensions Regulator actively monitors compliance and has significant enforcement powers:
| Penalty type | Amount |
|---|---|
| Fixed penalty notice | £400 |
| Escalating penalty notice | £50–£10,000 per day, depending on employer size |
| Civil penalty (individuals) | Up to £5,000 |
| Civil penalty (organisations) | Up to £50,000 |
| Criminal prosecution | For persistent non-compliance or deliberate obstruction |
The most common compliance failures for small employers: missing the declaration of compliance deadline, late contribution payments, failing to re-enrol at the three-year point, and not writing to all employees within the required timeframe.
Changes on the horizon
The Pension Schemes Bill 2024–26 is in its final parliamentary stages as of April 2026. Among the proposed changes under consideration:
- Lowering the auto-enrolment age from 22 to 18 — would bring younger workers into the system earlier.
- Removing the lower qualifying earnings limit — so contributions would be calculated from the first pound of earnings rather than from £6,240. This would increase pension costs for employers with low-paid or part-time staff.
These changes are not yet in force but are expected to be implemented in the coming years. Worth monitoring if either applies to your workforce.
Useful resources
- The Pensions Regulator — employer guidance, declaration of compliance, and letter templates at thepensionsregulator.gov.uk
- NEST — the government-backed pension scheme, free for any employer to use at nestpensions.org.uk
- MoneyHelper — clear guidance for employers and employees at moneyhelper.org.uk
- Your accountant — can help ensure contributions are calculated correctly and integrated with your payroll processes
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