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A complete guide to auto-enrolment for employers

Employers are legally obliged to offer a workplace pension to eligible staff, and there are certain duties you must carry out to ensure your business is compliant. We explain what you need to do and how to set up an auto-enrolment scheme for your organisation.  

1.12.25

By Dee Myhill

Staff talking about auto enrolment

As an employer, you’re expected to auto-enrol employees as soon as they’re hired, so if you’re a new business, ideally, you should set up your workplace pension scheme before taking on employees. Being prepared in advance also gives you time to register a contact with The Pensions Regulator, who will then send regular email updates about what needs to be done and by when.  

There are five key steps you’ll need to carry out to ensure you meet your legal obligations: 

 

Step one – choose your qualifying pension scheme 

You’ll need to decide which auto-enrolment pension scheme to use. You can either choose one yourself or ask an employee benefits consultant for advice about which schemes might be most suitable for your needs.  

Several schemes are available for small businesses, and these can be found on The Pensions Regulator website.  

When you’re comparing schemes, consider: 

  • what support you’ll get from the provider; 

  • whether you’ll need any special software; 

  • if there are any particular benefits offered; 

  • how funds are invested. 

Step two – assess which employees need to be auto-enrolled 

You’ll need to identify which employees are eligible for auto-enrolment. Currently, this includes any employee that: 

  • is aged between 22 and state pension age, and; 

  • earns more than £10,000 a year, or £833 a month, or £192 a week (these are known as the auto-enrolment earnings thresholds). 

As the employer, your legal duties around auto-enrolment start on the date you hire your first employee.  

Step three – tell your employees about the scheme 

You must let your employees know how they’re affected by auto-enrolment. This includes informing them whether they are eligible for auto-enrolment and what their options are, including how to opt out. 

You must do this within six weeks of starting their employment. 

Depending on the pension provider you sign up with, they might do this on your behalf. If not, you can find letter templates at The Pensions Regulator.  

Step four – declare compliance 

You must complete a ‘declaration of compliance’ and send this to The Pensions Regulator. You’ll need to do this within five months of when your legal duties begin (this is the date you hire your first employee).  

If you don’t complete this step, The Pensions Regulator won’t know if your business is compliant, and you could be fined. 

Step five – manage contributions, reassess, and re-enrol 

Once the scheme is up and running and you’ve identified which employees are eligible, you can then start making contributions (the scheme provider will supply instructions on how to do this). 

Remember to keep detailed records of all the employees who are part of the pension scheme (you should also note who isn’t eligible, along with anyone who has opted out). You should also keep track of how much you’ve contributed and when.  

Auto-enrolment operates on a three-year cycle; therefore, every three years, you’ll need to reassess which staff are eligible and notify them about how auto-enrolment affects them (steps two and three). Some employees may choose to opt out again. You’ll then need to send a ‘re-declaration of compliance’ that shows you’ve met your legal duties for the current cycle. 

How much do I need to pay into a workplace pension? 

The minimum contribution required is 8%. This is made up from the following contributions: 

  • 4% from the employee’s monthly wage. 

  • 3% from you as the employer. 

  • 1% from the government in the form of tax relief. 

You and your employees can choose to contribute more if you want to.  

What are qualifying earnings? 

An employee’s ‘pensionable earnings’ is the amount used to calculate pension contributions. Different schemes use different methods of working this out, but one of the more common methods is to use ‘qualifying earnings’ as the basis for calculating contributions.   

Qualifying earnings means only a portion of your employee’s salary is used to calculate contributions (but this could include their basic salary plus overtime, bonuses or commission).  

Using the qualifying earnings method for the tax year 2025-2026, only the amount between £6,240 and £50,270 (before tax) counts towards pension contributions. For example: 

  • Your eligible employee earns £18,000 per year.  

  • The 8% contribution is made up of 5% from the employee’s wage and tax relief, and 3% from you as the employer.  

  • The first £6,240 of their salary does not count towards the contribution. 

  • This means contributions are only based on £11,760 of their earnings (£18,000 salary minus £6,240). 

  • Your employee’s contribution is £49 per month (which includes tax relief of £9.80). 

  • Your employer contribution is £29.40 per month. 

MoneyHelper offers a tool to assist with your calculations, or your provider may also provide one. Bear in mind that the 8% contribution is the minimum.  

What are ‘total earnings’ contributions? 

Another method you can use is ‘total earnings’. This means that pension contributions are calculated based on everything the employee earns – without using the £6,240 to £50,270 threshold. For example, if your employee earned £45,000 per year, this total figure would be used to calculate pension contributions. 

Which is better, qualifying earnings or total earnings? 

This really depends on your business. Using the total earnings method, the employee will contribute more to their pension over time; however, this approach is more expensive in terms of both employee and business contributions. 

The qualifying earnings method is slightly more complicated, as you’ll need to determine the portion of their salary that is pensionable (although your provider may manage this). This method also means employees won’t save as much, but it does mean that contributions for them and your business remain low, while also meeting auto-enrolment rules. 

Can employees opt in and opt out of auto-enrolment? 

Yes, employees can opt in and opt out of their workplace pension.  

 

Employees who want to opt in 

If a new member of staff isn’t automatically eligible for your workplace pension, they should still be told about what their options are (under step three – telling your employees about the scheme).  

Employees can opt in if they: 

  • are aged between 16-21 or are aged between state pension age and 74; 

  • are earning above £10,000 per year.  

Or, if they are: 

  • aged between 16-74; 

  • earn above £6,240 and up to and including £10,000 per year. 

If employees wish to opt in, they must notify you in writing. 

Employees can also choose to join the scheme (The Pensions Regulator considers ‘opting in’ and ‘joining’ to be different). To join the scheme, employees must: 

  • be aged between 16-74; 

  • be earning £6,270 or less per year.  

Employees who want to opt out 

If an employee opts out within one month of enrolment, they will be eligible for a refund of any contributions made to date. If they opt out after one month, any contributions they have already made will remain in the pension pot until they can access it at the minimum pension age (currently 55, increasing to 57 in April 2028). 

Your pension provider will need to give your employee an opt-out notice to fill in and return to them. You’ll then need to ensure that any contributions are stopped. 

Is auto-enrolment worth it? 

If your employees are eligible for auto-enrolment, you are legally obliged to offer a workplace pension.  

For employees, it’s an easy way to start saving for retirement, providing much-needed reassurance that they will have some financial security as they age. The employer’s contribution (and the tax relief element) also provides a greater incentive for them to join, as it offers an opportunity for them to increase their savings at no additional cost to themselves. 

For business, a good workplace pension that potentially offers more than the minimum contributions can be a way to encourage loyalty and retain staff. It’s also an effective way for firms to demonstrate investment in their employees.  

Providing a workplace pension also provides tax efficiencies for businesses, as contributions can be offset against your corporation tax bill.  

How we can help you manage your workplace pension scheme 

Workplace pension schemes can benefit both employees and employers, but they can be time-consuming and complex to manage for busy HR teams or small businesses. 

At Alan Boswell Group, we offer dedicated support to ensure you meet your legal obligations. We can provide you with a choice of options – from managing the entire process to ad-hoc support or an ongoing review service.  

Get in touch

Our employee benefits consultants are on hand to discuss your needs and offer solutions that best fit your business. Speak to an adviser or send us an email.

Speak to us:  01603 967967

Please note, the value of investments and any income from them can go down as well as up and you might not get back the original amount invested. The past is not a guide to the future. 

The value of tax benefits depends on your individual circumstances and the laws concerning these can change. 

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