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Normally when an employer takes on a new member of staff, they’ll need to auto enrol them on to the business’s workplace pension scheme. It’s a bit different for the director of a limited company though. So how does it work for directors who want to save into a pension? Let’s take a look.

First off, what is auto-enrolment?

It used to be the case that employees asked to join the pension scheme, but since 2012 employers must automatically enrol any staff who are eligible – although they can leave later if they wish. The idea is that this gives people a better chance to save for their retirement beyond the state pension.



It’s sometimes useful to think of directors as any other employee. For instance, if they take a salary (and lots of directors do to be tax efficient), the way you work out income tax deductions for PAYE is the same. But directors are actually ‘office holders’, rather than employees in the true sense. This affects whether or not auto-enrolment applies for the company.

When do auto-enrolment rules apply for limited companies?

Auto-enrolment duties only apply if the company is an employer under auto-enrolment rules. As you might imagine, it’s pretty straightforward for a company which employs staff who aren’t directors! Even if the company only has one single member of staff, and a hundred directors on the payroll, it’s an employer for auto-enrolment.

So, what happens to auto-enrolment if the only people on the payroll are company directors? This depends on whether or not they are an employee in terms of automatic enrolment.

When is a director classed as an employee for auto-enrolment?

Basically, if the company has at least two people with employment contracts, it’s an employer for auto-enrolment. Even if both of those people are directors.

If an organisation has several directors but no other staff – and two or more of the directors have contracts of employment – all the directors with employment contracts are therefore classed as employees. This means they will be automatically enrolled in the workplace pension scheme just like any other staff member.

It’s worth noting that this only applies to that particular company. A company director might have another directorship elsewhere, where they’re not considered an employee.

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What if there are no employees for auto-enrolment?

A company might need to operate PAYE for any director’s salaries, but if it’s not an employer as far as pensions are concerned, and the directors decide not to opt-in voluntarily, you’ll need to report to the Pensions Regulator that the company is exempt from auto-enrolment duties.

When does a company have workplace pension and auto-enrolment duties?

A company becomes an employer as soon as:

As soon as a company starts employing people, it must provide them with an employment contract, setup a workplace pension scheme, and auto-enrol them.

When does a company have workplace pension and auto-enrolment duties?

What should I do if I become an employer under auto-enrolment rules?

Where there is a change in the company’s circumstances that mean automatic enrolment duties now apply, the company must let the Pensions Regulator know ASAP. A change of circumstances could be taking on a new member of staff under a contract of employment, or a sole director company registering another director and they both have employment contracts, for example.

Can directors set up a workplace pension anyway?

Yes, even if your company isn’t an employer as far as workplace pension rules go, you can still set up a scheme for the company directors.

Are a director’s pension contributions tax efficient?

Yes, absolutely. In fact, it’s a very popular way indeed of making everything as tax efficient as possible – within the law of course! A director’s pension doesn’t just mean they stand to be better off when they retire.

The company will need to make employer contributions into the director’s pension (as if they were any other employee), and these are an allowable expense, just like wages. It means you can offset them against your corporation tax bill. This is great news for a director because you’re effectively taking money out of the business in a very tax-efficient way.

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Are there restrictions on what I can pay into a pension?

Not as such, but you’ll be subject to the pension annual allowance. You’ll only be able to claim tax relief on contributions up to the lower of either £40,000 or 100% of your salary.

For anyone earning £150,000 a year or more, the £40,000 figure tapers down by £1 for every £2 earnt. This tapering is capped at £30,000, which in turn means that anybody earning more than £210,000 will only have an annual allowance of £10,000.

Whilst individuals can pay up to 100% of their salary into their pension, company directors will usually only take a small salary. As dividends don’t count as salary when it comes to bumping up their pension contributions, most company directors will instead make up their pension contributions via the limited company.

Although you’re not technically self-employed, as a company director it’s down to you to make your own pension provision. This is why it’s so important that company directors spend time understanding their pension requirements and setting up a director’s pension accordingly.

By doing this, you can effectively add to your pension both as an employee and via your limited company at the same time. In turn, the extra bonus is that you can claim pension tax relief twice: once on the contributions you make through your business and once as an individual. Great news!

How do pensions work for self-employed people?

Entrepreneurs don’t always launch their business as a company from day one. Lots of people start out as a sole trader, and then grow to a point where it’s more tax efficient to operate as a company. So, in interests in covering all bases, we’ll include some info about self-employed pensions too.

Anyone who is self-employed can set up a personal pension that allows them to save for their retirement. You can add regular contributions, as well as any ad hoc payments along the way too. The pension provider will then claim tax relief, and put it into your pension pot for you.

Considerations for self-employed pensions

Figures show that only around 17% of self-employed workers pay into a pension. This is particularly low considering the vast majority of employed people do pay into one. It’s a huge difference, especially as the state pension of £179.60 a week simply won’t be enough for many people.

Whilst employees tend to automatically enrol in a pension scheme, it’s up to self-employed individuals to sort out a pension for themselves. Apart from the effort that might involve, there are plenty of benefits in doing so, including:


Are you a company director wondering about auto-enrolment? Get in touch with the team by calling 020 3355 4047 or get an instant quote online.

About The Author

Suzanne Goodier-Dodson

I'm a Payroll Manager with a degree in Mathematics, responsible for overseeing every aspect of payroll for our clients. In my spare time, I love to travel and going to gigs. Read my Staff Spotlight.

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23rd March 2022 4:51 pm

Hi Suzanne great piece of information, if a director gets a director salary does it mean he has employment contract? or what does it refers to when you say “employment contract”

Elizabeth Hughes
Elizabeth Hughes
7th April 2022 12:53 pm
Reply to  santiago


You’re very welcome! Yes, if the Director is being paid a salary through the payroll they would be considered an employee of the company, and should have a contract. I hope this helps, but do let us know if there’s anything at all we can do.

Best wishes


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