What does auto enrolment mean for your business?
All employers are legally required to enrol eligible employees into their workplace pension scheme automatically - here is what this could mean for your business.
Pensions are long term investments. You may get back less than you originally paid in because your capital is not guaranteed and charges may apply.
What is auto-enrolment?
If you employ at least one person, you are likely to have to enrol them into your workplace pension under the Pensions Act 2008. This is known as 'automatic enrolment' and applies to every employer, no matter what business you are in.
The date you start enrolling employees is known as the 'staging date'.
Make the most of your tax-free ISA allowance.
Do you have to offer a pension?
If you employ workers, you must, by law, set up a workplace pension, enrol eligible employees and contribute to it on their behalf. This is the case no matter how large or small your company is - even if you employ just one person (such as a personal assistant or nanny).
If you run your own business
You are required by law to enrol your workers into a workplace pension scheme, but not every employee will be eligible.
Find out how to deal with your employees that are not eligible.
If you employ people in your home
If you pay people to work for you at your home, you have to enrol them into a workplace pension if they meet the qualifying criteria. These can include cleaners, gardeners, nannies or personal care assistants.
If you use an agency, rather than paying the worker directly, the agency will enrol them into a pension.
What if you do not have any employees?
You do not need to follow the new employer's duties if:
You are a sole director with no other staff
Your business only has directors, none of whom has an employment contract
Your business only has directors, and only one of them has an employment contract
Your company has either ceased trading, gone into liquidation or been dissolved
How much will it cost?
The amount you must contribute will be a percentage of your employees' qualifying earnings.
To work out your employees' qualifying earnings, you need to deduct the qualifying threshold for pensions (£6,240 a year in the 2020/21 tax year) from their gross annual salary.
For example, an employee earning £30,000 per year would have £6,240 deducted, leaving £23,760. This means their qualifying earnings are £23,760, so you will base your contributions on this figure.
Your contribution will be deducted from your employee's gross earnings, so your national insurance bill should be reduced as a result.
There is also a tax relief from the government, which helps to boost the employee’s total pension contribution each year.
This table shows the minimum level of contribution required:
| Who pays: | 2020/21 |
|---|---|
| You | 3% |
| Employee | 4% |
| Government tax relief | 1% |
| Overall contribution | 8% |
Find out more information on setting up your workplace pension here
As you can see, the employee has their 4% gross pension payment boosted to 8%, thanks to their employer’s contribution and tax relief.
When do you have to start?
Your legal responsibilities as an employer begin on the day your first employee starts work. You will need to ensure all eligible employees are auto-enrolled onto your workplace pension.
If you want to align your staging date with other key dates in the financial calendar, like when you file your tax return or at the start of the tax year, contact The Pension Regulator.
Find out more about your employer's duties here
What if you have recently set up your business?
Your staging date will be determined by the first date you pay an employee through a PAYE scheme.
If you only employ workers through personal service contracts and do not pay them through a PAYE scheme, your staging date will be 1st April 2017. You can find out more from the Pensions Regulator.
How else can you find out your staging date?
Go to The Pension Regulator website and enter:
Your PAYE reference (this is on your P6, P9 coding notice or P30BC white payslip booklet).
Your 'letter code' is a 10-digit code found on your auto-enrolment letter (if you do not have this, you can use this link to find out your letter code). You will then be given your staging date online.
What type of pension do you need to offer?
There is a wide range of workplace pension schemes available, but not all will accept auto-enrolment for employees.
If you have an existing workplace pension scheme, check if it will accept new members through auto-enrolment.
If it does not, you will have to find a new workplace pension scheme for employees not paying into an existing scheme.
Read our guide for more information on preparing your workplace pension.
Find the best personal pension plan to make your money work as hard as it can.