Pension Auto Enrolment Guide

Your first hire starts on Monday. You’ve sorted the employment contract, set up payroll, and opened a business bank account.

Then someone mentions pension auto-enrolment and you realise you’re not sure whether your new team member needs to be enrolled, what you’re required to contribute, or when any of this actually has to happen.

This guide covers what you legally need to do, when, and what ignoring it costs.

We have organised it around the questions we hear most often from first-time employers and SMEs who have hit their three-year re-enrolment date without realising it was coming.

What does UK auto-enrolment actually require from you?

Auto-enrolment is the legal duty on every UK employer to assess workers and, where eligible, place them into a qualifying workplace pension scheme without waiting for them to ask.

The scheme must meet minimum standards set by The Pensions Regulator (TPR).

Your duties begin on your “duties start date”: the day your first member of staff starts work. There is no grace period. Even if you believe none of your workers will qualify, you still have duties.

You must assess them and keep records proving you did.

You cannot defer this until HMRC sends a reminder or your payroll software flags it. The clock starts on day one.

Who do you actually need to enrol?

Workers fall into three categories, and the category determines what you must do.

Eligible jobholders must be enrolled automatically. These are workers aged 22 to state pension age, earning more than £10,000 per year (£833/month or £192/week).

They have no right to refuse enrolment, only the right to opt out afterwards.

Non-eligible jobholders do not qualify for automatic enrolment but can opt in and receive employer contributions.

This group includes workers aged 16 to 21 or state pension age to 74 who earn above £6,240 per year, and workers of any qualifying age earning between £6,240 and £10,000.

Entitled workers earn below £6,240 per year. They can request to join a pension scheme, but you are not required to make employer contributions on their behalf.

The threshold figures above apply to the 2026/27 tax year. TPR updates them periodically, so verify current thresholds before your duties start date.

We track these categories because confusing them is one of the most common and expensive mistakes we see employers make. Putting a non-eligible worker on the eligible list means paying contributions you did not legally owe.

Putting an eligible worker on the entitled list exposes you to a compliance notice and mandatory backdating.

What are the minimum contribution rates?

From April 2019, the minimum contribution rates for automatically enrolled workers are:

– Employer: 3% of qualifying earnings
– Employee: 5% of qualifying earnings
– Total: 8% of qualifying earnings

Qualifying earnings are not your worker’s total salary. They are calculated on earnings between £6,240 and £50,270 per year (the qualifying earnings band for 2026/27).

Earnings above £50,270 are excluded from the calculation. Earnings below £6,240 are also excluded. You contribute only on the band between those two figures.

To make this concrete: a worker earning £30,000 per year has qualifying earnings of £23,760 (£30,000 minus £6,240). The employer contributes 3% of £23,760, which is £712.80 per year.

The employee contributes 5%, or £1,188 per year.

These are legal minimums. You can choose to contribute more, and some employers do: either as a recruitment tool or because their scheme uses total earnings rather than qualifying earnings as the contribution basis.

That is your call, but the 3%/5% split is the floor below which you cannot go without breaching the law.

Why does the qualifying earnings band matter for your payroll setup?

The band runs from £6,240 to £50,270 for 2026/27. A part-time worker earning £12,000 contributes on £5,760, not their full salary.

A director on £120,000 contributes on £44,030, regardless of what they earn above the upper limit.

Where we see this go wrong: payroll software configured to calculate contributions on total pay rather than qualifying earnings. Over-contributing is a cost issue; under-contributing is a compliance failure.

Check this setting when you first configure your system. Fixing it after TPR has issued a notice means backdating corrections across multiple payroll runs.

The choice between NEST and a commercial provider like Smart Pension, Peoples Pension, or Aviva rarely comes down to cost alone. It comes down to payroll integration. We’ve found that employers using Xero or BrightPay typically get the smoothest data exchange with Peoples Pension and Smart Pension; employers on Sage or IRIS integrate most reliably with NEST via its API.

What happens every three years?

Re-enrolment is the obligation most SME employers miss. Every three years from your original staging date (or duties start date for newer employers), you must assess all workers who have previously opted out or ceased active membership of your scheme.

Those who are now eligible must be re-enrolled.

The three-year cycle is fixed. You have a six-month window in which to carry out the assessment: it opens three months before your re-enrolment date and closes three months after it.

Picking the timing within that window is your only flexibility.

Whether or not you have anyone to re-enrol, you must submit a re-declaration of compliance to TPR after completing re-enrolment. If every previously opted-out worker falls below the earnings threshold, you declare that and move on.

Skipping the re-declaration because you had no one to re-enrol is still a breach.

We have seen employers who handled their original staging perfectly then face enforcement action at the three-year mark because they assumed re-enrolment was only relevant if staff had opted out.

It is relevant regardless.

What is the declaration of compliance and when must you submit it?

After your duties start date, you have five months to complete a declaration of compliance with TPR.

This is an online submission confirming how you have met your duties: which scheme you are using, how many workers you enrolled, and your contribution rates.

The declaration is not a formality. TPR uses it to identify employers who are late or non-compliant. If you miss the five-month deadline, you are in breach before you have even had a payroll dispute.

For re-enrolment, a separate re-declaration must be submitted within five months of your re-enrolment date.

Keep your TPR correspondence reference number safe. You will need it for both declarations and for any future TPR queries.

Can workers opt out, and what does that mean for you?

Workers can opt out of the pension scheme, but only after they have been enrolled. You cannot allow them to opt out before enrolment, and you cannot encourage or induce them to do so.

Doing either is an offence under the Pensions Act 2008.

The opt-out window is one month from the date of enrolment. Workers who opt out within that window are entitled to a full refund of any contributions already deducted.

After the window closes, refunds do not apply and the worker becomes an inactive member rather than someone who opted out.

Your payroll team needs to process the refund promptly when an opt-out notice arrives. Delays attract scrutiny. And if you receive an unusually high volume of opt-out requests shortly after a recruitment drive, document the fact that no inducement was made.

TPR takes a dim view of patterns that suggest workers were pressured.

What are the penalties for getting this wrong?

TPR’s enforcement escalates in stages. Here is where the costs land.

A compliance notice is the first step. It requires you to correct the breach within a set period. Ignore it and TPR issues a fixed penalty notice of £400, which applies regardless of employer size.

If non-compliance continues, TPR moves to escalating penalty notices. The daily rate depends on how many employees you have:

– 1 to 4 workers: £50 per day
– 5 to 49 workers: £500 per day
– 50 to 249 workers: £2,500 per day
– 250 to 499 workers: £5,000 per day
– 500 or more workers: £10,000 per day

On top of the fines, TPR requires you to backdate contributions to the date each worker first became eligible. You pay the backdated employer contributions.

We’ve found that the most common auto-enrolment failure isn’t missing the staging date. It’s correct categorisation of workers at the boundary of the earnings trigger (£10,000 threshold). Part-time workers with variable hours regularly cross in and out of the eligible band, and employers relying on static payroll records rather than live assessment miss the re-enrolment obligation.

You are also expected to cover the backdated employee contributions unless you arrange otherwise. That backdating liability can dwarf the fine itself for a business that has been non-compliant for several months.

The civil penalty structure is designed so that non-compliance is always more expensive than compliance. That is not an accident.

What is your immediate next step?

If you are setting up for the first time: go to TPR’s online duties tool (thepensionsregulator.gov.uk/en/employers/new-employers) and enter your details. It produces a tailored duties timeline showing exactly when each obligation falls.

Do this before your first employee starts, not after.

If you are an existing employer approaching your three-year mark: check your original staging or duties start date, identify your re-enrolment window, and confirm whether your payroll software is set to trigger re-assessment automatically.

Many systems do not do this without manual configuration.

In both cases, make sure your payroll provider knows which pension scheme you are using and has the qualifying earnings band set correctly for the current tax year.

A five-minute configuration check now is worth considerably more than a backdating exercise later.

Related: best UK payroll software for SMEs | PAYE and employer NIC obligations | Choosing a workplace pension scheme