Auto Enrolment for Small Businesses: A Plain English Guide to Workplace Pension Duties
If you employ even one member of staff, the chances are you have auto enrolment duties. Automatic enrolment is one of those compliance areas that feels straightforward until you look closely, and the rules trip up plenty of small business owners. This guide breaks down what auto enrolment means for SMEs, what you actually have to do, how the 2025/26 thresholds work, what happens when someone wants to opt out, and the special position of single director companies.
What is auto enrolment?
Auto enrolment, also called automatic enrolment, is the legal requirement for employers to put eligible staff into a workplace pension scheme and to pay into it. It was introduced under the Pensions Act 2008 and is overseen by The Pensions Regulator. The aim is simple. It nudges more people into saving for retirement on top of their State Pension by making pension membership the default rather than something staff have to actively arrange.
As an employer you cannot pick and choose. If a member of staff meets the criteria, you must enrol them, and you must contribute. They can choose to leave, but that decision has to be theirs, not yours.
Who has auto enrolment duties?
You become an employer for automatic enrolment purposes as soon as you employ at least one person under a contract of employment. Your duties begin on what is known as your duties start date, which is normally the first day that person starts work.
Once you are an employer, you must assess every member of your team and place each one into one of three categories.
Eligible jobholders must be put into a pension automatically. These are staff who are aged 22 to State Pension age and who earn more than the earnings trigger of £10,000 a year for 2025/26.
Non eligible jobholders do not have to be enrolled automatically, but they have the right to opt in and receive employer contributions. These are typically staff aged 16 to 21, or staff at or over State Pension age up to 74, who earn above the lower threshold, plus anyone aged 22 to State Pension age earning between the lower threshold and £10,000.
Entitled workers can ask to join a scheme, but you are not required to contribute. These are staff earning below the lower earnings limit.
Auto enrolment thresholds for 2025/26
The key figures, which have been held at the same level for 2025/26 and again for 2026/27, are:
Earnings trigger for automatic enrolment: £10,000 a year
Lower limit of the qualifying earnings band: £6,240 a year
Upper limit of the qualifying earnings band: £50,270 a year
Qualifying earnings are the slice of pay between the lower and upper limits, and this is the band most schemes use to calculate contributions.
What employer duties actually involve
Being an employer for auto enrolment is an ongoing responsibility, not a one off task. In practice you need to:
Choose a qualifying pension scheme that is set up for automatic enrolment.
Assess your staff on your duties start date and then every pay period.
Automatically enrol any eligible jobholders and start contributions.
Write to all your staff to explain how auto enrolment affects them.
Complete your declaration of compliance with The Pensions Regulator within five months of your duties start date.
Keep records and reassess staff whose age or earnings change.
The declaration of compliance is the step people forget. Even if none of your staff need to be enrolled, you usually still have to tell the regulator what you have done. Missing it is one of the most common reasons SMEs receive a penalty notice.
Minimum pension contributions
The minimum total contribution for a workplace pension is 8% of an employee's qualifying earnings. Of that, the employer must pay at least 3%, with the employee making up the balance, which is 5% including tax relief from the government. You are free to pay more than the minimum if you wish, and some employers contribute on full salary rather than only the qualifying earnings band, which is more generous to staff.
Opting out of a workplace pension
Staff who are automatically enrolled have the right to opt out. There are a few important points to understand here.
A member of staff can only opt out after they have been enrolled, not before. The opt out has to be initiated by the employee, and you must never encourage or pressure anyone to leave the scheme. Inducing staff to opt out is unlawful.
If someone opts out within the one month opt out window, they are treated as though they were never a member, and any contributions already taken are refunded. If they opt out later, they stop future contributions, but earlier contributions usually stay invested until retirement.
Opting out is not permanent. Staff can opt back in, and in any case you have a duty to put certain staff who have left the scheme back in roughly every three years. This three yearly duty is called reenrolment, and it comes with its own declaration of compliance.
Single director companies and the auto enrolment exemption
This is the area that causes the most confusion, so it is worth being precise.
A company with a single director and no other staff is not treated as an employer for automatic enrolment. That holds whether or not the director has a contract of employment. In that situation you have no duty to set up a pension scheme or complete a declaration of compliance, although you should tell The Pensions Regulator that you are not an employer if you receive a letter from them.
The exemption can also apply where a director has a contract of employment but is the only person in the company with one. A director is only treated as a worker for auto enrolment if they have a contract of employment and at least one other person also works for the company under a contract of employment.
The position changes the moment that second contract appears. If you take on an employee who is not a director, or if a second director starts working under a contract of employment, the company becomes an employer and the duties begin. So a husband and wife company where both are directors with contracts of employment will have full duties, while the same company with only one contract will usually be exempt.
If your only other employee is over State Pension age, you may still become an employer, but that person will not be an eligible jobholder, so you would not have to enrol them automatically. You would still need to assess them, write to them about their right to opt in and complete a declaration of compliance.
What happens if you get it wrong?
The Pensions Regulator can issue compliance notices and fixed penalty notices, followed by escalating daily penalties if duties are still not met. The regulator also has powers to recover unpaid contributions on behalf of staff. For a small business the reputational and financial cost of getting this wrong is far higher than the cost of setting it up correctly in the first place.
Get your auto enrolment duties right
Auto enrolment rewards employers who plan ahead and keep clean records. The traps are nearly always the same ones: missing the declaration of compliance, misclassifying a director, or assuming an exemption applies when it no longer does.
At Kubed Solutions we help owner managed food, drink and FMCG businesses stay on the right side of their workplace pension and payroll obligations, so you can focus on running your business. If you are unsure where you stand, we can assess your staff, confirm whether the single director exemption applies to you and make sure your declaration of compliance is filed on time.
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This article is for general guidance only and does not constitute financial or pensions advice. Pension scheme selection should be discussed with a regulated adviser. Figures relate to the 2025/26 tax year.