Auto enrolment workplace pensions: Employer setup guide

Published 23 March 2026

Table of contents

• What is auto-enrolment?
• Who you must enrol and when
• How to set up a workplace pension scheme
• Running auto-enrolment in payroll
• How to stay compliant after setup
• Set up auto-enrolment with Xero
• FAQs on auto-enrolment for employers

Key takeaways

• Automatic enrolment in a workplace pension scheme is a legal duty for UK employers. They must assess staff, enrol eligible workers, and pay into a qualifying workplace pension.
• Set up your scheme before your first relevant payroll. Decide on your level of pension contributions (a minimum of 3%), choose the earnings basis, and prepare staff communications that comply with regulations.
• Submit your declaration of compliance on time, keep accurate records, and re-enrol eligible staff every 3 years, as required by law.

What is auto-enrolment?

Workplace pension auto-enrolment is a UK system that legally requires employers to put qualifying staff into a workplace pension scheme and make regular contributions to it. The system aims to encourage people to build up savings and prepare for retirement.

Employers and employees jointly contribute to each employee’s pension. Employers must contribute at least 3% of qualifying earnings, with employees contributing the rest to reach the legal minimum of 8%.

Qualifying earnings are the part of an employee’s pay that falls between the legal lower and upper earnings thresholds. For the 2025/26 tax year, these thresholds are £6,240 and £50,270. Only the portion of earnings within those limits is used to calculate minimum pension contributions.

Once you’ve set up your scheme, payroll can handle most of the ongoing assessments and contribution calculations for you. For the official guidance, visit GOV.UK’s workplace pensions for employers page.

Who you must enrol and when

Employers must automatically enrol their eligible staff into a qualifying workplace pension and make contributions into it. It’s one of your key responsibilities as an employer.

What you need to do depends on each person’s age, earnings, and employment status.

Criteria for automatic enrolment

Employees qualify for automatic enrolment as an eligible jobholder if they are:

• aged 22 to State Pension age – currently 66 (but set to rise to 67 between 2026 and 2028)
• above auto-enrolment thresholds with qualifying earnings of £10,000 or more per year for the 2024/25 financial year – equivalent to £833 per month or £192 per week
• not already in a qualifying pension scheme
• working mainly in the UK

If an employee does not meet the criteria, they may still be able to join the pension scheme, but the employer doesn't have to enrol them automatically.

Workers not eligible for auto-enrolment

There are two categories of workers who are not eligible for automatic enrolment into workplace pensions: non-eligible jobholders and entitled workers. These workers may still be able to have the right to opt in or join a scheme.

Non-eligible jobholders are people who are:

• aged 16 to State Pension age earning £6240 to £10,000 per year
• aged 16 to 21 earning more than £10,000 per year
• aged above State Pension age earning more than £10,000 per year

These workers can opt in at any time, and you must accept their request and make employer contributions.

Entitled workers are those who earn below £6240 per year. They can ask to join a pension scheme, and you must accept their request. However, you aren’t required to make employer contributions to their pensions unless your scheme rules say otherwise.

You cannot encourage workers to opt out or discourage them from opting in. This is called inducement – and it’s illegal.

Postponing auto-enrolment

As an employer, you can delay auto-enrolment into workplace pensions for up to 3 months if you have a valid reason and notify the employee in writing within 6 weeks. A valid reason might be:

• the employee is on a short-term contract and is likely to leave within 3 months
• the worker is still within their probation period
• you need extra time to set up the employee correctly or to align their assessment with your payroll cycle

Postponement doesn't remove any worker’s rights. If an employee asks to be enrolled during the postponement period and meets the qualifying criteria, their request overrides your postponement – you must enrol them and start contributing to their pensions.

Auto-enrolment for directors and contractors

A director is only covered by auto-enrolment if they have an employment contract and the business employs at least one other person – which could be another director.

Sole directors with no other staff don’t have to set up a workplace pension, although they can choose to do so.

Freelancers and self-employed contractors are not included in auto-enrolment. But if a contractor works and pays tax more like an employee, they have the same auto-enrolment rights and protections as any other employee and must be assessed as a worker.

How to set up a workplace pension scheme

Setting up a workplace pension is essential for auto-enrolment, and should be one of the first things you organise when you hire someone. Here’s how to register as an employer.

You only need to set up one pension scheme for your business, and eligible employees are enrolled into it when they join. The steps below guide you through the process.

1. Choose a qualifying scheme

Start by selecting a pension provider that offers an auto-enrolment pension scheme that meets the legal requirements. Check that the provider accepts business in your industry and your planned contribution levels.

If you're unsure where to start, try NEST (the National Employment Savings Trust) – a government-backed pension scheme designed specifically for auto-enrolment. It's available to all employers and has no minimum contribution requirements, so it’s a popular choice for small businesses.

If you already have a pension scheme that meets auto-enrolment rules, you can continue using it without switching.

2. Set contribution levels

Next, decide how much you and your employees will contribute. Contributions are set as percentage rates with your pension provider, and your payroll software then deducts contributions at source. The minimum legal requirement is 8% of qualifying earnings, of which you (as the employer) must pay at least 3%.

You can pay more if you wish, which can be an attractive benefit for employees and help your business attract staff in a competitive job market.

3. Select an earnings basis

An earnings basis is the method you use to define which parts of an employee’s pay count when calculating pension contributions, and it must be applied consistently across your workforce.

The law sets minimum pension contributions based on the qualifying earnings basis, which include pay between the lower and upper earnings thresholds.

However, there are two other methods to pick from:

• basic pay, which excludes overtime and some allowances
• total earnings, which includes all pay elements

Both options are valid, as long as your scheme meets or exceeds the minimum level of contributions that would apply using the qualifying earnings basis.

4. Send staff communications

You must send statutory information to each worker within 6 weeks of the date they are assessed. These letters explain their rights, whether they are being auto-enrolled, how contributions are calculated, and their options to opt in or opt out. The Pensions Regulator website provides a useful template for this letter.

The letter should also direct staff to the complete information about the pension scheme.

5. Connect payroll to your provider

With your scheme set up, sync it with your payroll software to automate assessments, contribution calculations, and pension submissions. This removes human error and cuts down manual work.

Running auto-enrolment in payroll

Running auto-enrolment is not a once-and-done process. Each pay run triggers a new set of tasks that you must handle correctly to stay compliant.

Assess and enrol staff each pay run

Each pay period, check whether any workers now qualify for auto-enrolment based on their age or income. Enrol anyone who is now eligible in time for the next pay run, and issue the required notification within the 6-week window.

Calculate and deduct contributions

Your payroll software should automatically calculate contributions based on your pension scheme rules and the earnings basis you choose. Even so, it’s worth manually reviewing the figures to make sure they’re right, particularly for calculations involving variable pay like overtime or bonuses.

Send pension files and payments

After each pay run, send the report to your pension provider and make the corresponding payment. Most schemes require this monthly, although some accept more frequent submissions. Check your provider’s deadlines to avoid possible charges.

Keep and maintain records

Hold accurate records of all assessments, enrolment dates, contributions, opt-outs and opt-ins, and staff communications. You’re legally required to retain these records for 6 years, and they are likely to be reviewed during audits, so keep them secure.

How to stay compliant after setup

Even after your scheme is up and running, you still have several ongoing legal responsibilities to manage.

File the declaration of compliance

You must send a declaration of compliance to The Pensions Regulator once you have set up your scheme and enrolled any eligible employees. You need to do this within 5 months of your duties start date.

Re-enrol staff every 3 years

You can choose the exact date to re-enrol your staff, but it must fall within 3 months of the day you started your duties 3 years ago – or your last re-enrolment date.

On your chosen date, you reassess any employees who previously opted out. If they meet the eligible jobholder criteria, you must now enrol them and tell them in writing, even if they opted out only recently. They can opt out again if they wish.

You must also send to The Pensions Regulator a re-declaration of compliance on your re-enrolment date, even if no one is re-enrolled.

Manage opt-outs and refunds

Employees can opt out of the workplace pension within 1 month of enrolment. If they do, they can request a full refund of their pension contributions through payroll.

After the 1-month window closes, they can still opt out and stop future contributions, but won't get a refund for anything already paid in.

What to do if you’re late or made mistakes

If you realise you’ve missed an enrolment, underpaid contributions, or sent information late, tell The Pensions Regulator straight away and correct the mistake.

The Pensions Regulator can penalise employers, but if you notify them as soon as you can and fix your mistake, you’ll probably avoid a penalty.

Learn more about processing backpay

Set up auto-enrolment with Xero

Xero helps you stay on top of your business finances, while Xero Payroll (an optional add-on) makes auto-enrolment easier. It calculates contributions each pay run, generates reports, and connects to your pension provider automatically. First-time enrollers get step-by-step guidance to set up correctly from day one.

Note: Xero Payroll requires an upgrade to your Xero plan.

Get one month free

FAQs on auto-enrolment for employers

Here are quick answers to common questions about workplace pensions and auto-enrolment:

What earnings thresholds apply?

Employees must be auto-enrolled if they earn £10,000 or more a year. Those earning between £6240 and £10,000 can opt in and receive employer contributions. Anyone earning below £6240 can ask to join the pension scheme, but the employer isn’t legally obliged to contribute. View the latest earnings thresholds on The Pensions Regulator's website.

What are the minimum contributions?

The legal minimum total contribution is 8%. Employers must pay at least 3% (although you can contribute more), and the employee contributes the rest.

How long is the opt-out window?

Employees have 1 month from the date they receive their enrolment letter to opt out and receive a full refund of their contributions. If they opt out after this window, future contributions will stop, but they won’t receive a refund for any amounts already paid.

By when do I need to submit the declaration of compliance?

You must submit a declaration of compliance to The Pensions Regulator within 5 months of your employer duties starting.

How often do I re-enrol staff?

Every employer must re-enrol eligible staff every 3 years. You need to do this within a 6-month window around their re-enrolment date.

When does my auto-enrolment duty start?

Your workplace pension scheme must be operational from the day you hire your first employee. This is your duties start date, and you have 5 months from this date to complete your declaration of compliance.

Can I postpone enrolment?

Yes. You can postpone auto-enrolment for up to 3 months, provided you notify the employee in writing within 6 weeks.

Do director-only companies need to set up a scheme?

No. A company with only directors does not need a workplace pension scheme unless two or more directors have contracts of employment.