Employers are required to set up workplace pension schemes if they hire staff, and then automatically enrol any employee who’s eligible. The rules round workplace pensions and auto-enrolment are a real headache because they’re so confusing, so this article goes over your responsibilities as an employer.

What is a workplace pension?

Not to be confused with the State Pension (which you become eligible for by making enough National Insurance contributions), workplace pensions are arranged by employers. You must have a workplace pension set up as soon as your very first employee starts work. This is referred to as your ‘duties start date’.

Eligible staff are automatically enrolled into the pension scheme by their employer, though they can opt out if they want to. Once signed up, employers deduct pension contributions from employees’ wages, and pay the amount into the scheme on their behalf along with their own contribution. These contributions happen as well as National Insurance contributions – not ‘instead of’.

Who needs to set up a workplace pension?

You must legally provide a workplace pension scheme if you’re running a business and employing staff.

 
Auto-enrolment rules are only in place to determine who must be enrolled automatically. Employees can still choose to join the scheme even if they don’t meet the criteria for auto-enrolment, so it’s essential you have one in place.

That said, exceptions can sometimes apply, such as directors who don’t employ any staff.
 

What is auto-enrolment?

Like the name suggests, auto-enrolment means eligible employees are enrolled into a workplace pension scheme automatically. They can opt out again if they want to, and there’s no obligation to stay in the scheme. It’s a personal decision and will often depend on their financial situation, so it’s essential you give them a choice.

You’ll need to repeat the auto re-enrolment process every three years, although your employees can still opt out each time (or they can request to join the scheme at any point before then).

Who do I need to enrol into my workplace pension scheme?

You must enrol any employee who wants to join your pension scheme – you can’t refuse! But you’ll need to automatically enrol any employee:

• Aged between 22 and State Pension age
• Earning £10,000 or more per year
• Who normally (‘ordinarily’ as HMRC call it) operates in the UK and has a contract of employment

What do I need to tell employees when I auto-enrol them?

As part of their initial auto-enrolment, you’ll need to explain:

• How much they will individually contribute to their pension from their earnings
• How much you, as their employer, will be paying in (this must be a minimum of 3%)
• What tax relief will be applied by the government
• How they can opt out if they want to

Your pension provider will confirm all this for you, but it’s important to share the details with your staff and keep everything transparent.

What happens if an employee opts out of a workplace pension?

Employees can opt out of a workplace pension scheme at any time. If they were automatically enrolled and choose to opt out within one month of their auto-enrolment date, any contributions already taken will be refunded. Opting out after the one month period is allowed, but means any contributions will stay in their pension pot. Anyone who opts out can ask to re-join in the future.

Even if an employee doesn’t ask to re-join, you’ll need to repeat the auto-enrolment process every three years. They can decide again whether they want to remain or not, but it means that door stays open.

Are part-time employees eligible for auto-enrolment?

Auto-enrolment rules aren’t just for full-time employees. The rules also include part-time workers, short-term contracts, and anyone on parental, maternity, adoption, or carer’s leave.

Can employees join a pension scheme even if they’re not covered by auto-enrolment?

Yes, they can. Your workplace pension scheme should be open to any employee who wants to opt-in, even if they’re not automatically eligible under auto-enrolment rules.

You’ll need to help them join, and will need to make employer contributions if they earn enough to qualify for this (we’ll explain this in the section about contributions). Someone who earns over £10,000 and is aged 22 or older is enrolled automatically.

When do I not need to auto-enrol an employee?

You don’t need to auto-enrol an employee into your workplace pension scheme if they:

• Have already given notice to say they’re leaving their job, or you’ve given them notice to leave the business
• Opted out of a pension arranged by you as their employer more than 1 year before their staging date
• Have already taken a pension which you arranged for them, that meets the automatic enrolment rules
• Can demonstrate they have lifetime allowance protection (this is usually a certificate from HMRC)
• Receive a one-off payment from a workplace pension scheme that is now closed (a ‘winding up lump sum’), and then leave and rejoin the same job within 1 year of receiving the payment
• Are from an EU member state and have already joined an EU cross-border pension scheme

How much are employer pension contributions?

Pension contributions are a percentage of the employee’s pensionable earnings:

• Pensionable earnings (the chunk of earnings you make contributions on) are currently between £6,240 and £50,270 a year
• The minimum contribution is 8% of the employee’s pensionable earnings. Employers must contribute at least 3% (which would leave the employee to pay the remaining 5%), but it can be more.

You’ll need to make these contributions for anyone in your pension scheme aged between 16 and State Pension age, and earning more than £6,240 per year (£520 per month, or £120 per week).

The difference between auto-enrolment and pension contributions

There are so many thresholds and figures to keep track of that it can all get a bit confusing! We thought an at-a-glance table would help.

Can I pay more than the minimum contribution into a workplace pension?

Some employers choose to make higher pension contributions as a recruitment and staff retention tool. Employees can also pay more, but be aware there may be tax implications for saving more than the annual allowance (£60,000 for the 2026/27 tax year) into a pension during a tax year.

How do I set up a workplace pension?

In very basic terms you’ll need to choose your pension provider and assess your workforce.

Choosing a workplace pension provider

The most common sort of workplace pension is a defined pension scheme, and these are divided into two types: defined contribution pension schemes, and defined benefit pension schemes. So, what’s the difference?
 

 
There are a few really key questions you should ask your pension provider before agreeing to anything.

• Who manages the pension? Can employees choose where their contributions are invested, or will there be a scheme manager to do it for them?
• What are the fees and charges? Pension providers generally take a fee as a percentage of the whole pension pot each year. Many will also charge an annual management fee.
• Where is the money invested? Where will the money actually go? Will it be invested in cash, shares, stocks, or property for example?
• Is there a limit to how many employees you can add? It’s worth going for one with either a very high limit, or no limit at all. After all, your organisation will hopefully grow over the years, so you need to make sure you won’t hit problems.

Assessing your workforce

For the purposes of pension administration, businesses generally have different types of workers:

• Type 1 (eligible jobholders)
• Type 2 (non-eligible jobholders and entitled workers)

Your employees are likely fall into one of these categories, and it’s your responsibility to give The Pensions Regulator evidence of each one. You won’t need to do this for external workers, such as agency staff or freelancers.

It’s very important to review everyone’s eligibility on a regular basis! Your employees’ status can change over time, so someone who wasn’t originally subject to auto-enrolment might eventually qualify. For example, if they turn 22 whilst working for you, or have a pay rise which qualifies their earnings.

Type 1 employees – must be automatically enrolled

Type 1 employees were previously referred to as eligible jobholders. These are jobholders who are over the age of 22, earn more than £10,000 a year, and are contracted to work in the UK. In other words, they tick all the boxes for auto-enrolment.

If an eligible jobholder decides to opt out, then the auto-enrolment process must be repeated after three years. They’ll have the opportunity to opt out again, and the process will continue to repeat on a 3-yearly basis.

Type 2 employees – don’t need to be enrolled automatically

This bit can be particularly confusing because the employee might not qualify for auto-enrolment, but you might need to make pension contributions if they ask to join.

Non-eligible jobholders

A non-eligible jobholder will normally be earning between £6,240 and £10,000 a year, and aged either between 16 and 21, or between state pension age and 74. Like eligible jobholders, they may also be contracted to work in the UK.

They don’t need to be automatically enrolled onto your workplace pension, but you must tell them about opting in or contributing to a separate pension scheme instead.

If they do opt in, you must make employer contributions exactly as you would for eligible jobholders.

Entitled workers

Entitled workers have the right to join your pension scheme, but they won’t be automatically enrolled.That said, you should make it clear they’re welcome to join if they want to. This could be the same pension scheme used for other employees, or it could be a different one.

They’re usually aged between 16 and 74 and, crucially, earning less than £6,240 a year – so you won’t need to make contributions to an entitled worker’s pension. If you decide to make contributions anyway, make sure you look out for a pension scheme which lets both you and your worker pay in.

 
Need help with any aspect of workplace pensions or auto-enrolment? Get in touch with the team by calling 020 3355 4047 and get an instant online quote.