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Normally when an employer takes on a new member of staff, they’ll need to automatically enrol them on to their workplace pension scheme. It’s a bit different for the director of a limited company though, so let’s take a look at how auto-enrolment works for directors who want to save into a pension.

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 employees are able to opt out of the scheme if want to. 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?

  • They hold an employment contract with the organisation, and,
  • At least one or more other people (who may be another director) also holds an employment contract with the organisation.

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:

  • It takes on a member of staff who isn’t a director, or,
  • There are two or more directors with employment contracts

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. Whilst individuals can pay up to 100% of their salary into their pension, company directors will usually only take a smaller salary combined with dividends. 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.

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.

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, which is a great news for owner/directors because you’re effectively taking money out of the business in a very tax-efficient way.

You can 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!

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 £60,000 or 100% of your salary.

In the 2023/24 tax year, the annual allowance for high earners will gradually reduce by £1 for every £2 of income you earn above £260,000. The tapering stops at £360,000.

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.

That said, 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

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:

  • The government will top up your pension by 25%. In effect, for every £100 you save yourself, you’ll receive an additional £25 into your pension.
  • Effective pension provision helps you access professional investment managers who will invest your cash in a range of assets. This is a sensible way to manage risk
  • New pension freedom rules mean you have far more options for spending your pension pot on retirement. This includes being able to draw out a tax-free lump sum
  • If you pass away before turning 75, your pension usually passes on to a loved one or other beneficiary as a lump sum, without any inheritance tax.

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 Senior Payroll Clerk 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


6th March 2023 9:50 pm

Hi Suzanne, very nice and well written article, if a director of a company A is not drawing salary and not on PAYE of the company, but is employed under an Umbrella company B & getting paid by Company B, will he still be eligible for pension contribution from Company A(not on PAYE), purely on the basis that he is a office holder in the capacity of a Director?

Elizabeth Hughes
Elizabeth Hughes
7th March 2023 9:29 am
Reply to  Sreenath

Hi Sreenath

Thanks very much for your message! The director wouldn’t be an eligible jobholder under Auto Enrolment rules, but can make contributions directly into a personal pension from ‘Company A’ without running it through a payroll.

I hope this helps, but if there’s anything at all we can do for you, please do give the team a call on 020 3355 4047.

Best wishes


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