Taken on your first member of staff? The moment they start work, you have legal duties for a workplace pension. There's no grace period, and "we're too small" isn't an exemption.
The good news is that the rules are clearer than they look. Once you know who you have to enrol, how much it costs, and which deadlines matter, auto-enrolment becomes a routine part of running payroll.
This guide is for small employers and new businesses in England, Wales and Northern Ireland. We'll cover who you must enrol, the 2025/26 thresholds, what it actually costs you, the deadlines you can't miss, and a worked example so you can see the numbers in pounds.
What is auto-enrolment, and does it apply to my small business?
Auto-enrolment is the legal requirement to put eligible staff into a workplace pension scheme and pay money into it. It's run by The Pensions Regulator, not HMRC, although it sits right alongside your payroll.
Your duties start on the day your first member of staff begins work. The Pensions Regulator calls this your duties start date. From that day you're an employer with legal obligations, even if you only employ one person and even if you're a brand-new company.
So the short answer is yes. If you pay someone through PAYE, auto-enrolment almost certainly applies to you. What changes from business to business is which staff you must actively enrol and how much you pay, and that comes down to age and earnings.
If you're just setting up, our guidance for startups walks through getting payroll and pensions in place from day one.
Who do I have to put into a pension?
Whether you must enrol someone depends on their age and what they earn. The rules split your staff into three groups.
| Worker category | Age | Earnings | What you must do |
|---|---|---|---|
| Eligible jobholder | 22 to State Pension age | Over £10,000 a year | Automatically enrol them and pay contributions |
| Non-eligible jobholder | 16 to 74 | Between £6,240 and £10,000 (or 16-21 / SPA-74 earning over £10,000) | Don't auto-enrol, but enrol and contribute if they ask to opt in |
| Entitled worker | 16 to 74 | At or below £6,240 a year | Don't auto-enrol; give them access to a scheme if they ask to join |
In plain terms, you must automatically enrol any worker who is aged between 22 and State Pension age and earns more than £10,000 a year for 2025/26. That's the core group.
Younger or older staff, and those earning less, have the right to ask to join. If a non-eligible jobholder opts in, you have to contribute just as you would for an eligible jobholder.
Staff can opt out after they've been enrolled. They have a one-month opt-out window, and if they opt out within it, any contributions already taken are refunded. After that month they can still stop contributions, but the money usually stays in the pension until retirement.
What are the auto-enrolment thresholds for 2025/26?
Three numbers drive everything: the earnings trigger and the two ends of the qualifying earnings band. For 2025/26 these are frozen at the same levels as the previous year.
| Threshold | 2025/26 annual | Monthly | Weekly |
|---|---|---|---|
| Earnings trigger for auto-enrolment | £10,000 | £833 | £192 |
| Lower limit of qualifying earnings band | £6,240 | £520 | £120 |
| Upper limit of qualifying earnings band | £50,270 | £4,189 | £967 |
The earnings trigger is the pay level at which someone of the right age must be enrolled. The qualifying earnings band is the slice of pay that contributions are calculated on. You don't pay contributions on every pound someone earns, only on the part that falls between £6,240 and £50,270.
How much do I have to pay in?
The minimum total contribution is 8% of qualifying earnings. Of that, the employer must pay at least 3%, and the worker makes up the rest, including the tax relief the government adds.
| Who pays | Minimum % of qualifying earnings (2025/26) |
|---|---|
| Employer | 3% |
| Worker (including tax relief) | 5% |
| Total minimum | 8% |
A few things worth knowing. You can pay more than 3% if you want to, and many employers do as a recruitment perk. The 8% is a floor, not a target. And because contributions are based only on qualifying earnings, the real cost is lower than 3% of someone's whole salary.
Tax relief is part of how the worker's 5% is funded. In a typical "relief at source" scheme, a basic-rate taxpayer's contributions are topped up by 20% from the government, so part of their 5% effectively comes from tax they'd otherwise have paid.
Worked example: what does it cost a small employer?
Illustrative example. Maya runs a small hair and beauty salon and employs Sofia, aged 28, on a salary of £24,000 a year. Sofia is an eligible jobholder, so Maya must enrol her.
Contributions are based on qualifying earnings, not the full salary:
- Qualifying earnings = £24,000 - £6,240 = £17,760
Now apply the minimum rates for 2025/26:
- Employer at 3%: £17,760 x 3% = £532.80 a year, which is £44.40 a month
- Worker at 5%: £17,760 x 5% = £888.00 a year, which is £74.00 a month
- Total into the pension: £1,420.80 a year
So Maya's own cost is £532.80 a year for this employee, a little over £44 a month. Sofia's £74 a month includes basic-rate tax relief, so in a relief-at-source scheme the actual reduction in her take-home is closer to £59.20 a month, with the government adding the £14.80 difference.
The headline point for budgeting: the employer minimum here is about 2.2% of Sofia's gross salary, not 3%, because nothing is charged on the first £6,240. If you want to model take-home pay after pension and tax for a specific wage, our payslip calculator does the sums for you.
This is an illustrative example using one employee and the statutory minimum contribution. Your scheme rules, pay definition and any higher contribution rate you choose to offer can change the figures.
What deadlines and duties do I need to track?
Auto-enrolment is not a one-off task. Here's the rhythm of it.
Day one (duties start date). Assess your staff, set up a qualifying scheme, write to each worker explaining what auto-enrolment means for them, and start enrolling and contributing for anyone eligible.
Within five months of your duties start date. Complete your declaration of compliance with The Pensions Regulator. This is the legal confirmation that you've met your duties. Missing it can lead to penalties, and it applies even if you had no one to enrol.
Every payday. Run the assessment through payroll. Someone who gets a pay rise or a birthday can move into the eligible group, and you must enrol them when they do.
Every three years (re-enrolment). Roughly every three years you must put back into the scheme any eligible staff who previously opted out or stopped contributing, then submit a re-declaration of compliance within five months of your re-enrolment date.
Most of this lives inside good payroll software, but the duties are yours as the employer. If payroll feels like a job too many, Zmartly's bookkeeping and payroll support keeps assessments, contributions and declarations running quietly in the background.
What about directors and one-person companies?
This is where many small companies trip up. A company with a single director and no other staff usually has no auto-enrolment duties, because a director without an employment contract isn't classed as a worker for these rules.
It's not always that simple. If your company has more than one director and at least two of them have contracts of employment, or you employ anyone besides directors, duties can apply. The Pensions Regulator still expects you to tell them your situation, even where you believe you're exempt.
For owner-managed limited companies, it's worth confirming your position in writing rather than assuming you're outside the rules. Getting it wrong is an easy way to pick up an avoidable penalty.
Frequently asked questions
Do I have to offer a pension if I only employ one person?
Yes, if that person is a worker rather than a director without a contract. Auto-enrolment duties begin on the day your first member of staff starts work, regardless of how small your business is. Whether you must actively enrol them depends on their age and earnings.
What happens if a member of staff opts out?
If they opt out within one month of being enrolled, any contributions taken are refunded and it's as if they were never enrolled. After that window they can still stop future contributions, but the money already paid in normally stays invested until retirement. You must re-enrol eligible staff who have opted out roughly every three years.
How much does auto-enrolment cost me as the employer?
The legal minimum is 3% of each eligible worker's qualifying earnings, which for 2025/26 is the slice of pay between £6,240 and £50,270. Because nothing is charged on the first £6,240, the cost as a percentage of full salary is lower than 3%. You can choose to contribute more.
When is my declaration of compliance due?
You must complete it within five months of your duties start date. It confirms to The Pensions Regulator that you've met your duties, and you must submit it even if you had no eligible staff to enrol. A re-declaration follows each three-yearly re-enrolment.
Are company directors caught by auto-enrolment?
A sole director with no employment contract and no other staff generally has no duties. But if there are two or more directors with employment contracts, or any non-director employees, duties can apply. It's best to confirm your status with The Pensions Regulator rather than assume.
Calculate your take-home pay →
Talk to Zmartly about your payroll and pension duties
Setting up auto-enrolment, running the monthly assessment and filing your declaration on time shouldn't eat into the hours you spend running your business. Want it handled properly from day one? Book a free 20-minute call with a Zmartly accountant and we'll set up your payroll and workplace pension the right way.
