Auto-Enrolment Pension for Small Employers: What You're Required to Do and When

There is an organisation called The Pensions Regulator. They have 1.4 million employers in their dataset. They monitor compliance. They write letters. And when the letters don't work, they issue fixed penalty notices — £400 for the first failure — followed by escalating daily penalties that can reach £10,000 per day for larger employers who continue to ignore them.

This is not a bureaucratic background noise problem. This is an active enforcement regime that catches small employers regularly, usually because the employer thought someone else was handling it or assumed it didn't apply to them yet.

Auto-enrolment requires UK employers to automatically enrol eligible employees into a qualifying workplace pension scheme and contribute at least 3% of qualifying earnings. It applies from the first eligible employee. There is no minimum size threshold. There is no grace period for new businesses. The day you employ someone who qualifies, the clock starts.

Who Has to Be Enrolled

The auto-enrolment eligibility test has three variables: age, earnings, and worker category.

Eligible jobholders — must be automatically enrolled. Aged between 22 and state pension age, earning above £10,000 per year (£833 per month, £192 per week). Both conditions must be met.

Non-eligible jobholders — have the right to opt in but are not automatically enrolled. Either aged 16 to 21 or state pension age to 74, earning above £10,000; or aged 22 to state pension age but earning between £6,240 and £10,000.

Entitled workers — can request to join but with no employer contribution required. Aged 16 to 74, earning below £6,240 per year.

The employer must assess every worker against these criteria on their first day of employment. Not when convenient. Not when the payroll next runs. On the first day. The assessment determines what happens next.

The Contribution Structure

The minimum total contribution under auto-enrolment is 8% of qualifying earnings. The employer must contribute at least 3%. The remaining 5% comes from the employee — but this 5% includes the government's basic rate tax relief of 1%, so the employee's actual out-of-pocket contribution is 4% plus 20% relief makes it 5% gross.

Qualifying earnings are defined as earnings between the lower threshold (£6,240 per year in 2026/27) and the upper threshold (£50,270 per year). Contributions are calculated on earnings within this band, not on total earnings.

For an employee earning £24,000 per year: qualifying earnings are £24,000 minus £6,240 = £17,760. Employer contribution at 3%: £532.80 per year. Total minimum contribution at 8%: £1,420.80 per year.

Some pension schemes use a different earnings definition — pensionable pay rather than qualifying earnings — which may produce a different figure. Some employers pay contributions on total earnings above the lower threshold. As long as the total contribution meets or exceeds the statutory minimum, either approach is acceptable.

The Six-Week Enrolment Window

Once a new eligible employee is identified, the employer has six weeks to enrol them in the pension scheme. In practice, most payroll software handles this automatically — the employee appears on the payroll, the system assesses eligibility, and enrolment is triggered.

The employer also has six weeks to write to the employee explaining their auto-enrolment status, the scheme they are being enrolled in, their contributions and the employer's contribution, and their right to opt out.

Six weeks sounds comfortable. It isn't, if the pension scheme isn't set up. A new employer taking on their first employee needs the pension scheme in place before day one — or at minimum, secured and configured within the first few days — to meet the enrolment deadline. Setting up a NEST or Smart Pension account takes a few days. Leaving it until week five of an employee's employment is cutting it fine.

Opt-Out — What Employers Cannot Do

An employee can opt out of auto-enrolment. But the process must be employee-initiated, voluntary, and happen after enrolment — not before.

The employer cannot encourage, incentivise, or induce an employee to opt out. This is an offence under pension regulations. It does not matter how gently it is suggested. A manager mentioning to a new starter that "lots of people opt out" is close enough to inducement to create a compliance risk.

After the employee opts out within the opt-out window, the employer refunds any contributions deducted and removes them from the scheme. The employer then re-enrols the employee every three years — automatic re-enrolment is a mandatory duty, regardless of the fact that the employee opted out previously. The employee can opt out again, but the re-enrolment must still happen.

Re-Enrolment and the Cyclical Duty

Every three years — on the anniversary of the employer's auto-enrolment duties beginning — the employer must re-assess the workforce and re-enrol anyone who has opted out or ceased active membership. This is the re-declaration of compliance, submitted to The Pensions Regulator within five months of the three-year anniversary date.

Missing the re-declaration generates exactly the same compliance sequence as missing the original enrolment: compliance notice, fixed penalty, escalating penalty. The Pensions Regulator reminds employers in advance. Ignoring the reminder is not a defence.

bookd. manages auto-enrolment assessment and enrolment as part of the payroll service — new starter assessment, contribution calculation, scheme communication letters, and the three-year re-enrolment cycle. If your current payroll isn't generating automatic enrolment assessments for new starters, the gap between what's being done and what's legally required may be wider than it looks.