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Which of your employees qualify for a workplace pension?

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When you take on new staff you need to work out whether you need to enroll them in your workplace pension. Here is how to approach each type of worker in your business.
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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.

It’s now compulsory for all employers to offer their staff a workplace pension.

Following the introduction of auto-enrolment rules, which have been phased in since 2012, companies need to enroll all eligible employees into the scheme and make pension contributions on their behalf.

But how do you work out which staff are eligible and which staff are not?

Make the most of your tax-free ISA.

How to assess your workforce

Your starting point is to consider what constitutes an employee for pension purposes. Under the current rules this means they must have either:

  • An employment contract with you, or

  • A contract to perform work for you, but not as part of their own business

Whether you need to enroll your employees on to the workplace pension will depend on a number of factors including their age, their earnings and where they work.

Some workers may not want to pay into a work pension, if they are worried about the cost of contributions for example, but you still need to sign them up. If they decide against the scheme they have the right to opt out.

Even if you only employ one member of staff, for example a personal assistant, you still have pension responsibilities for them.

What type of workers do you employ?

From a pensions’ perspective there may be three types of worker in your business;

  • Eligible jobholders

  • Non eligible jobholders

  • Entitled workers.

Employer duties apply to each type of worker, and you will need to provide evidence to The Pensions Regulator of each individual employee.

You may have some workers that don’t fall into any of these categories. If this is the case, you don’t have any pension responsibilities for them.

Who is an eligible jobholder?

Eligible jobholders include any employees who fit the following criteria:

  • Aged at least  22 but under state pension age

  • Earns more than £10,000 a year*

  • Works in, or normally works, in the UK (as part of their contract)

* Earnings threshold is determined by the DWP, and reviewed annually.

Who is a non-eligible jobholder?

Non-eligible jobholders include those who are:

  • Aged between 16 and 74

  • Earns between £6,240 and £10,000 a year

  • Works in, or normally works in the UK, under their contract

Or

  • Aged between 16 and 21, or between the state pension age and 74

  • Earns more than £10,000 a year

  • Works in, or normally works in the UK, under their contract

Who is an entitled worker?

Entitled workers are employees who fit the following criteria:

  • Aged between 16 and 74

  • Earns less than £6,240 a year

  • Works in or normally works in the UK under their contract

What do you need to offer each type of worker?

You have a responsibility to offer each of your workers the option to join a pension. However, you don’t need to enroll all of them onto your workplace scheme. Here is what you need to do for each type of worker.

Eligible jobholders

You must enroll all eligible jobholders into a pension scheme by your duties start date. .

They can choose to leave the workplace pension if they wish, but they will only get a refund of contributions if they do so within 30 days. This is known as 'opting out'.

You must give all eligible jobholders the relevant information about auto enrolment including:

  • How much will be deducted from their earnings

  • How much you will contribute

  • How much tax relief they will get from the government

  • Information on opting out

Your chosen pension provider will often provide template letters and help you communicate scheme details with your staff.

Any eligible jobholders who opt out will need to be re-enrolled after three years. You will also have to pay into all eligible jobholders’ pensions. The minimum contribution for employers is 3% of their qualifying salary.

Non-eligible jobholders

You do not need to automatically enrol non-eligible jobholders  onto your workplace pension.

However, you do have to give them information about opting in or contributing to a separate pension scheme.

If they decide to pay into the auto enrolment workplace pension, you must contribute towards it in the same way you do for eligible jobholders.

Entitled workers

You don’t have to auto-enrol entitled workers, however they must be free to join the scheme if they wish.

This might be the same scheme you use for other workers or a different one. 

You can choose to contribute to entitled workers’ pensions, but it is not compulsory. If you decide to, make sure you find a pension scheme which accepts contributions from you as well as your worker.

What next?

Here is more information on finding the right pension scheme and how to set it up.

You can also use our auto enrolment form to get in touch with an advisor to discuss your options.

You can help ensure you have the retirement you want by finding the best personal pension plan to make your money work as hard as it can.

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