Pension Auto-Enrolment: Complete Employer Guide for 2026

Auto-enrolment is one of the few employer duties that applies from the moment you hire your first worker, regardless of company size, sector, or turnover. Get it wrong and The Pensions Regulator (TPR) can fine you daily, name you publicly, and in serious cases prosecute. Get it right and it quietly runs in the background of payroll.

This guide covers what UK employers need to do in the 2026/27 tax year: who to enrol, how much to pay, what to communicate, when to re-enrol, and how to handle the common edge cases that trip up SMEs.

What auto-enrolment actually requires

Every UK employer must:

1. Enrol eligible workers into a qualifying workplace pension scheme.
2. Pay at least the minimum employer contribution.
3. Deduct the worker's contribution from pay and pay it to the scheme on time.
4. Write to every worker explaining what has happened and what their options are.
5. Re-enrol workers who previously opted out, once every three years.
6. Complete a Declaration of Compliance (and re-declaration) with The Pensions Regulator.

These duties apply from the day your first worker starts. There is no grace period, no small employer exemption, and no opt-out for directors who have a signed contract of employment.

Who counts as an eligible jobholder

Workers fall into three categories, and each category triggers different duties.

Eligible jobholders (must be auto-enrolled)

• Aged 22 or over but under State Pension age
• Earn more than £10,000 a year (the earnings trigger for 2026/27)
• Ordinarily work in the UK

You must enrol these workers automatically. They can choose to opt out within one month of enrolment and get a refund.

Non-eligible jobholders (can opt in, you must contribute)

• Aged 16 to 21 or State Pension age to 74, earning above the earnings trigger, OR
• Aged 16 to 74 earning between the lower earnings limit (£6,240) and the earnings trigger (£10,000)

You do not have to enrol them automatically, but if they ask to opt in, you must enrol them and pay the standard employer minimum.

Entitled workers (can join, you do not have to contribute)

• Aged 16 to 74 earning at or below the lower earnings limit (£6,240)

If an entitled worker asks to join a pension scheme, you must let them, but you do not have to make an employer contribution.

2026/27 earnings thresholds

For the tax year running 6 April 2026 to 5 April 2027, the thresholds are:

• Earnings trigger: £10,000
• Lower level of qualifying earnings: £6,240
• Upper level of qualifying earnings: £50,270

Qualifying earnings is the band between the lower and upper limits. That is the default pensionable pay unless your scheme uses a different basis (see below).

Always check the current year thresholds before running payroll. TPR updates them annually and payroll software usually pulls them in automatically, but the responsibility sits with you as the employer.

Minimum contributions

The statutory minimum is 8% of qualifying earnings, split as follows:

• Employer minimum: 3%
• Worker minimum: 5% (which includes tax relief, so the worker actually sees 4% coming out of their net pay and HMRC adds 1%)

These are floors, not targets. Many employers contribute more, particularly in sectors where pension contributions are part of the offer used to attract staff. Some schemes also use alternative contribution bases:

• Set 1 (qualifying earnings basis): 3% employer, 5% worker, on earnings between £6,240 and £50,270.
• Set 2 (basic pay basis): 4% employer, 5% worker, on basic pay.
• Set 3 (total earnings basis): 3% employer, 4% worker, on total earnings including bonus and overtime.

If you are unsure which basis your scheme uses, ask your provider. Getting this wrong means either underpaying contributions (a compliance breach) or overpaying (an unnecessary cost).

Choosing a qualifying scheme

Your scheme must be a qualifying scheme under the Pensions Act 2008. In practice, most SMEs choose from a small number of providers:

• Nest (National Employment Savings Trust), set up by government specifically for auto-enrolment. Cheap, reliable, accepts any employer.
• The People's Pension, popular with SMEs.
• Smart Pension, tech-forward with good payroll integration.
• Aviva, Legal and General, Scottish Widows, Standard Life for larger employers or those wanting a wider investment choice.

There is no legal requirement to shop around, but the cost and service difference between providers is real. A 0.5% annual management charge compounded over 40 years eats a noticeable chunk of the worker's pot, which some workers will eventually notice and ask about.

Duties when a new worker joins

For every new hire, you need to assess them on their first day and every pay period after that. The steps:

1. Check whether they are an eligible jobholder, non-eligible jobholder, or entitled worker based on age and earnings.
2. If eligible, enrol them into your qualifying scheme within six weeks of their start date.
3. Write to them within six weeks explaining they have been enrolled, what the contributions are, and how to opt out.
4. Start deducting and paying contributions from the enrolment date.

Most modern payroll software does the assessment automatically each pay run, which is the only practical way to keep on top of workers whose earnings fluctuate (especially those on variable hours or commission).

Postponement

You can postpone assessing a new worker for up to three months from their start date. This is commonly used for:

• Short-term hires who might not complete probation
• Workers with irregular earnings where a one-off spike would otherwise trigger enrolment
• Aligning enrolment dates with your pay cycle

Postponement does not mean you escape the duty. You must still send a postponement notice within six weeks of the deferral date, and once the postponement ends, you assess normally.

The opt-out process

Workers have one month from enrolment to opt out. If they do:

• You must refund any contributions they have paid.
• You must stop deducting future contributions.
• They rejoin the default enrolment pool at the next re-enrolment date (three years later).

Critically, you cannot help workers opt out. You cannot write the opt-out letter for them, you cannot hand them a form to sign, and you cannot incentivise them to opt out. All of this counts as inducement and is an offence under the Pensions Act 2008. The opt-out must come from the worker, directly to the scheme, in a format the scheme has set up. Most providers handle this through an online portal or paper form sent to the worker's home address.

Re-enrolment duties

Every three years you must re-enrol any worker who previously opted out, if they would still qualify as an eligible jobholder. The re-enrolment date is set by you (within a six-month window around the third anniversary of your staging date or previous re-enrolment date).

Steps:

1. Choose your re-enrolment date.
2. Assess every worker who has opted out to see if they now qualify.
3. Enrol qualifying workers back into the scheme.
4. Write to them within six weeks.
5. Complete a re-declaration of compliance with TPR within five calendar months of your re-enrolment date.

Workers can opt out again, and many do, but you still have to go through the process. Treat re-enrolment as a standing project rather than a surprise: diary it three years ahead and brief payroll six months before.

Communications you must send

TPR sets out minimum content for every letter. You must tell each worker:

• That they have been enrolled (or that they qualify to opt in)
• The name and contact details of the pension scheme
• How much is being contributed by them and by you
• How to opt out
• Where to get further information

Template letters are available free from TPR and from most pension providers. You do not need to draft your own, but you do need to adapt them with correct employer name, scheme name, and contact details.

Declaration of compliance

Within five calendar months of your duties start date (and every three years at re-enrolment), you must complete a Declaration of Compliance through the TPR online service. This is a short form confirming:

• Your PAYE reference
• Your pension scheme details
• The number of workers you enrolled, opted in, or who were already active members
• That you have met your communication duties

Miss the deadline and you will receive a Fixed Penalty Notice of £400, followed by daily escalating penalties if still outstanding. TPR prosecutes in the most serious cases.

Common SME mistakes

A few patterns come up repeatedly in TPR enforcement action:

• Not assessing every pay period. A worker whose earnings rise above the trigger in a given pay run must be enrolled, even if their annual earnings are lower.
• Paying late. Contributions must reach the scheme by the 22nd of the month after deduction (19th for post or cheque). Late payments trigger reporting duties for the scheme and audits from TPR.
• Forgetting directors. A company director with a written employment contract is a worker for auto-enrolment purposes. A director who is the sole officer with no contract is not.
• Skipping re-enrolment. Because it happens every three years, many employers miss it entirely. TPR has specifically targeted this in recent compliance sweeps.
• Inducement. Telling a new hire "you can opt out if you want" in the interview is already drifting towards inducement. Keep opt-out information neutral and scheme-driven.

How auto-enrolment interacts with other pay duties

Auto-enrolment sits alongside several other employer pay obligations. Contributions are calculated on gross pay (or qualifying earnings), which means they interact with minimum wage, statutory pay, and holiday pay in ways that catch employers out.

A worker paid at or near minimum wage cannot have their pension contribution deducted in a way that takes their net pay below the minimum wage. Our minimum wage employer guide for 2026 covers how the 2026 rate rises interact with payroll deductions.

Statutory pay periods also affect contribution calculations. When a worker is on statutory maternity pay, their pension contribution is based on their actual SMP amount, but your employer contribution must continue based on their normal earnings as if they were still working. The same applies during paternity, adoption, and shared parental leave. Our SMP calculations guide walks through this in detail.

Holiday pay also counts as qualifying earnings, which matters for workers with variable hours where holiday pay is calculated on an average. See our holiday pay calculations guide for the full method.

Penalties for non-compliance

TPR uses an escalating enforcement ladder:

1. Compliance Notice. A formal request to put things right by a specific date. Free, but on the record.
2. Unpaid Contributions Notice. Requires you to pay missing contributions, plus interest.
3. Fixed Penalty Notice. £400 flat fine.
4. Escalating Penalty Notice. £50 to £10,000 per day depending on headcount.
5. Prosecution. For wilful non-compliance or inducement, individuals can face up to two years in prison.

TPR publishes quarterly enforcement bulletins naming employers who have had notices issued. SMEs appear regularly. The Regulator is resourced to pursue small employers, not just FTSE companies.

Practical setup for a new employer

If you are hiring your first worker and do not yet have a pension scheme, the fastest compliant path is usually:

1. Open a Nest account online. It takes about 30 minutes and there is no set-up fee.
2. Connect your payroll software (most integrate directly).
3. Use your software's automatic assessment each pay run.
4. Diary the Declaration of Compliance deadline.
5. Diary the three-year re-enrolment window.

You do not need an accountant or consultant to get this right at a basic level. You do need to be systematic about the dates and about writing to every worker on time.

Get your pension compliance audited

Auto-enrolment breaches are quiet. Workers rarely notice, which means you often do not find out until TPR writes to you after a routine check or a disgruntled ex-employee complaint. By then, interest and fines have accrued.

An audit of your auto-enrolment set-up, contribution history, communications, and re-enrolment diary takes about an hour and catches the common failure points before they become enforcement action. If you would like one, our EmployerKit compliance audit covers auto-enrolment alongside the other core employer duties.

FAQs

Q: Do I have to auto-enrol a director of my own limited company?

A: Only if the director has a written contract of employment and earns above the earnings trigger. A sole director with no contract is not a worker for auto-enrolment purposes and is excluded. If you have two or more directors, at least one of whom has a contract of employment, you have auto-enrolment duties for those with contracts. If this applies to your business, tell TPR, because otherwise they will assume you have duties and send reminders.

Q: Can I pay more than the 3% minimum employer contribution?

A: Yes, and many employers do. Higher contributions are often used to attract staff, match senior employee contributions, or as an alternative to salary increases (because they attract tax relief). You can also match worker contributions up to a cap, for example matching worker contributions pound for pound up to 6%. Whatever you choose, write it into the employment contract and the scheme documents so it is clear.

Q: What happens if a worker opts out after the one-month window?

A: They cannot get a refund of past contributions (unlike opting out within the first month). They can simply stop contributing going forward, but their existing pension pot stays with the scheme. They will be automatically re-enrolled at your next three-yearly re-enrolment date, and can opt out again at that point.

Q: Do I have to auto-enrol a worker on a zero hours contract?

A: Yes, if they meet the eligibility criteria in any given pay period. Zero hours workers often move in and out of eligibility as their earnings fluctuate, which is why every-pay-period assessment matters. Payroll software handles this automatically. See the zero hours contracts guide in our library for the broader picture of duties that apply to these workers, particularly in light of the guaranteed hours changes coming in autumn 2026.

Q: What is the difference between a qualifying scheme and a registered pension scheme?

A: A registered pension scheme is any scheme registered with HMRC for tax purposes. A qualifying scheme is the narrower subset that meets the auto-enrolment quality standards: minimum contributions, default investment fund, no barriers to membership, no penalties on opting out. All qualifying schemes are registered, but not all registered schemes qualify. Ask your provider to confirm in writing that their scheme is a qualifying scheme for auto-enrolment.

Q: What records do I have to keep and for how long?

A: TPR requires you to keep records of enrolment, opt-outs, opt-ins, contributions, and communications for six years. Opt-out notices must be kept for four years. Keep them in a way that survives a change of payroll provider, because TPR can ask for them at any point during the six-year window.