Pension auto-enrolment: everything SMEs need to know

Posted on Dec 9th, 2014 | Employment law

From October 2012, most workers will start being auto-enrolled into a pension plan by their Employer (under the Pensions Bill that also abolished the Default Retirement Age during 2011). Here we give you the full details of the scheme.

Employers will have to start paying up to a minimum of 3% of each worker monthly salary, starting from October 2012 into a pension scheme and manage their workers’ contributions and the pension fund, if the worker isn’t already in a suitable pension scheme.

[Article updated 2017]

  • However, there is a ‘phasing’ stage for Employer contributions – eventually Employers must make a minimum contribution of 3%, but can pay more, and workers make their own contributions with a minimum of 5% (they’ll get tax relief on their contributions) – combined, these contributions should be a minimum of 8% of the workers earnings. Initially, however, Employers who have a staging date up to 5th April 2018 (see below) must make a 1% minimum contribution (and the worker a minimum of 1%). Employers with a staging date of between 6th April 2018 to 5th April 2019 must make a 2% minimum contribution (and the worker a minimum of 3%). From 6th April 2019 onwards the Employer minimum will be 3% and the worker minimum must be 5% (so 8% total)
  • The start date for the scheme will be staggered by business size – the applicable start dates (called the ‘staging’ dates) are below. The 1st April 2012 is a crucial date though, as the number of PAYE staff that are employed by an Employer at that date, determines that ‘staging’ date the Employer has to start offering the scheme
  • A study in June 2013 found that 59% of businesses were unprepared for auto-enrolment (90% of firms with under 100 employees) and 53% of small firms didn’t know when their staging date was
  • The Pensions Regulator have started fining Employers who don’t enrol their staff – in May 2016, they fined Swindon Town Football Club £29,000 after it “repeatedly failed to comply with its automatic enrolment duties”.

This will apply to all workers aged 22 and over (but who haven’t yet reached the State Pension age) who earn more than £10,000 per year and who work in the UK. This figure, known as the ‘qualifying figure’ is the 2014/15 PAYE threshold but remains the same during 2016/17 and 2017/18, will be reviewed annually and is made up by a worker’s pay, overtime, commission, bonuses, statutory sick pay and statutory maternity/paternity/adoption pay. These workers will be called ‘eligible job holders‘ under this legislation and must be auto-enrolled into the pension scheme.

  • Workers aged between 16 and 22, and those aged between State Pension Age and 75, and those who are earning more than £5,876 (the 2017/18 Lower Earnings Limit) may join the scheme if they choose (opt-in) and will receive Employers contributions. These workers are called ‘non eligible job holders‘ under this legislation, but have no right to be auto-enrolled; they must choose to join.
  • Those workers earning £5,876 or below can also choose to join a pension scheme you offer but may not be eligible for Employer contributions. These workers are called ‘entitled’ job holders and Employers don’t have to make contributions for these workers; these workers don’t have to join the scheme you’ve chosen for automatic pension enrolment, it can be any scheme you offer they can join.

Fed up of the nine to five? Find out more about working for yourself.

  • The upper limit of the qualifying earnings band is £45,000 (2017/18 figure).

This includes agency workers. Eligible jobholders will have to be enrolled automatically by the 12th week of their employment but can choose to opt-back out of the scheme after auto-enrolment.

  • Employers must communicate to their workers, in writing, when their scheme is starting and how the workers are affected by this. The Employer must tell them they’ve been automatically enrolled and that they have the right to opt-out if they want to do so. From 1st April 2014, Employers have six weeks to provide information to workers on their joining and opting out rights
  • To opt-out of the pension scheme a worker must complete an ‘opt-out’ notice within the first month of being auto-enrolled – and will receive a refund of contributions made. A worker can leave the scheme at any other time if they don’t opt-out, but won’t receive a refund of contributions.
  • Every three years all those who have opted out will need to be re-enrolled in the scheme (but again can choose to opt-out).
  • There will be an upper limit of earnings – so Employers will only need to make contributions from the Lower Earnings Limit Level to an upper limit. This upper limit is currently £45,000 from April 2017.

The Pensions Regulator will contact all Employers six to 12 months before their staging date with full details. Employers must register with the regulator and give them details of their scheme and the number of people that have been automatically enrolled. If an Employer doesn’t offer their own pension scheme, they’ll need to choose one (The Pensions Regulator have produced information to help with this which is here) or use the new National Employment Savings Trust (Nest) scheme. If an Employer already has their own pension scheme, they’ll need to check it qualifies and confirm this with the regulator. A qualifying scheme must not impose barriers, such as probationary periods or age limits for members, or require staff to make an active choice to join. The Department for Work and Pensions have published a ‘toolkit’ for Employers. In addition, from 2012, Employers must not:

  • Encourage workers to opt-out of the pension scheme (e.g. by using inducements to encourage a worker to opt-out – a salary increase or one-off payment in return for a worker opting out)
  • Have recruitment practices in place that benefit job applicants who indicate they’re prepared to opt-out, or screen out applicants who wish to join the pension (e.g. the Employer mustn’t ask questions or make statements that claim or imply that a job applicant’s success is dependent on whether or not they’d opt-out of the pension scheme; or for example include an opt-out form as part of a general application pack)
  • The Pensions Regulator will be responsible for any breaches by an Employer in the above two circumstances.
  • Treat a worker unfairly, put them at a disadvantage or dismiss them because of automatic enrollment (there’ll be no time limit needed by employees to claim unfair dismissal in these circumstances).
  • Employees will also be able to ‘whistle-blow’ if they feel they’ve been subject to detriment or dismissal for making a protected disclosure under whistleblowing legislation if their employer fails to comply with the auto-enrolment legislation.
  • For more details, see our new article about what is required of businesses from 1st July here.

Staging date timeline

List of staging dates by PAYE scheme size (as of March 2012):

PAYE scheme size

Staging date

120,000 or more PAYE workers 1 October 2012
50,000-119,999 1 November 2012
30,000-49,999 1 January 2013
20,000-29,999 1 February 2013
10,000-19,999 1 March 2013
6,000-9,999 1 April 2013
4,100-5,999 1 May 2013
4,000-4,099 1 June 2013
3,000-3,999 1 July 2013
2,000-2,999 1 August 2013
1,250-1,999 1 September 2013
800-1,249 1 October 2013
500-799 1 November 2013
350-499 1 January 2014
250-349 1 February 2014

Staging dates for employers with fewer than 250 persons in their PAYE scheme:

Employer by PAYE scheme size

Staging date

From (inclusive)

To (inclusive)

50 to 249 PAYE workers 1 April 2014 1 April 2015
30 to 49 1 August 2015 1 October 2015
Fewer than 30 1 January 2016 1 April 2017
Employers without PAYE schemes 1 April 2017
New employers who set up from April 2012 to March 2013 1 May 2017
New employers who set up from April 2013 to March 2014 1 July 2017
New employers who set up from April 2014 to March 2015 1 August 2017
New employers who set up from April 2015 to December 2015 1 October 2017
New employers who set up from January 2016 to September 2016 1 November 2017
New employers who set up from October 2016 to June 2017 1 January 2018
New employers who set up from July 2017 to September 2017 1 February 2018
New employers who set up from October 2017 onwards *** Immediate duty

Employers are allowed to bring their staging date forward, but it must be from a list of available dates here.

*** Employers with staging dates up to 1st February 2018 can ‘postpone’ the automatic enrolment of new workers into the scheme (after they reach the staging date) for three months (often lined with a probationary period or a short-term contract). Currently, however, employers who set up their business from October 2017 onwards won’t be able to use postponement. In early 2017, the government consulted on two changes to new employees from 1st October 2017:

  • automatic enrolment would apply from when the first worker starts employment, and
  • employers will be able to use the three month postponement if they wish.


If you are an Employer and need ongoing professional help with any staff / freelance issues, or help implementing pensions auto-enrolment, then talk to Lesley at The HR Kiosk – a Human Resources Consultancy for small businesses – our fees are low to reflect the pressures on small businesses and you can hire us for as much time as you need.

Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.

Join Crunch Chorus:
The free community for the self-employed

You'll get access to a range of benefits, such as invoice software, jargon-free business guides, great networking opportunities, discounts, plus much more

Written by Lesley Furber

Useful tools and resources

Business guides

From understanding expenses to starting a limited company, we've a range of jargon-free business guides for you to download and keep.

Invoicing software and templates

Create, send and store sole trader invoices in a snap with our free invoice software. You can also download a selection of invoice templates for all business types.

Take-home pay calculator

Use our Take-Home Pay Calculator to work out your true earnings and see if you could save money with a different company set up.