Workplace pensions: what you must do the day you hire your first employee

Most first-time employers know a workplace pension is coming at some point. Far fewer know that their legal duties begin on the day their first member of staff starts work — not when the probation period ends, not when the payroll settles down, and not when The Pensions Regulator writes to them. That day is called the duties start date, and everything else counts from it.

It is not a complicated regime once it is set up. It is just unforgiving about dates, and the penalties are automatic rather than discretionary. Here is the whole thing in the order you will meet it.

Who you actually have to enrol

Auto-enrolment sorts your staff into three groups, and the group determines your duty.

Eligible jobholders are aged 22 or over, under state pension age, and earning more than £10,000 a year — the earnings trigger, unchanged for 2026/27. These people must be enrolled automatically. You do not ask them first; you enrol them and then tell them they have been enrolled and that they can opt out.

Non-eligible jobholders earn above £6,240 but not enough to hit the trigger, or are aged 16 to 21 or over state pension age. They are not enrolled automatically, but if they ask to opt in you must enrol them and you must pay employer contributions.

Entitled workers earn £6,240 or less. They can ask to join a pension scheme and you must give them access to one, but you are not obliged to contribute.

One relief worth knowing: if your company's only worker is a single director with no employment contract, there are no auto-enrolment duties at all. You still have to tell The Pensions Regulator that the duties do not apply, rather than ignoring the letters.

What it costs

The legal minimum is 8% of qualifying earnings, of which the employer must pay at least 3%. Qualifying earnings for 2026/27 are the slice of pay between £6,240 and £50,270 — not the whole salary, which is the single most common misunderstanding.

Take an employee on £28,000. Qualifying earnings are £21,760. The employer's 3% is £652.80 a year, or £54.40 a month. The employee's 5% is £1,088 a year, though under a relief-at-source scheme they actually see about £72.53 leave their net pay each month and the government adds the basic rate tax relief. Total going into the pot: £1,740.80 a year.

On a £28,000 salary the legal minimum costs the employer about £54 a month. The cost of getting the process wrong starts at £400 and escalates daily.

You can be more generous, and many small employers are — paying a flat percentage of full salary rather than qualifying earnings is simpler to explain and lands better at interview. What you cannot do is pay less than the minimum, or calculate the minimum on the wrong number.

Postponement, opt-outs and the things you must not do

You can postpone assessment for up to three months from the duties start date, which is genuinely useful if you take on seasonal staff or want to get through a short probation. Postponement has to be notified in writing within six weeks, it does not postpone your declaration deadline, and any member of staff can still ask to opt in during the postponement period. It delays the admin; it does not remove it.

Once enrolled, a member of staff has a one-month window to opt out and get a full refund of what they have paid. After that they can stop contributing, but the money already in stays there until retirement. You must re-enrol everyone who opted out roughly every three years, which is a genuinely awkward conversation to have twice with the same person, so it helps to explain in advance that it is a legal requirement rather than your idea.

The hard rule: you must not encourage anyone to opt out. Suggesting it, offering a pay rise in exchange, screening for it at interview or implying it would be helpful is inducement, and it is treated seriously. Some of The Pensions Regulator's most public enforcement has been against employers who did exactly this and put it in writing.

The deadline first-time employers miss

You must complete a declaration of compliance within five months of your duties start date, telling The Pensions Regulator what you did and for whom. It is an online form. It is also the single most commonly missed obligation in the whole regime, because employers reasonably assume that having actually set up a pension and paid into it is the compliance.

It is not. Setting up the scheme and enrolling people is the duty; the declaration is proof of the duty, and missing it is a breach in its own right. A fixed penalty notice is £400, followed by escalating penalties charged daily at anywhere from £50 to £10,000 depending on how many people you employ. For a business with a handful of staff that is £50 a day, every day, until it is fixed. The same declaration has to be repeated every three years alongside re-enrolment.

Setting it up without it eating a week

Choose a scheme first. The master trusts built for small employers integrate directly with the main payroll packages, which matters more than any comparison of fund ranges, because the ongoing work is the file that goes from payroll to pension provider every pay run. If your payroll software and your pension scheme do not talk to each other, you have created a recurring manual job that will eventually be done late.

Then do these five things in order. Work out your duties start date and diary the declaration deadline five months later. Assess every member of staff against the three categories using their actual pay, including overtime and commission. Decide whether to postpone, and if so issue the notice within six weeks. Write to every member of staff explaining what has happened — the scheme provider will supply template letters, and this correspondence is a legal requirement in its own right. Complete the declaration of compliance as soon as the first contribution has run, rather than leaving it to the deadline.

Pensions are one item on a longer first-hire list. The written statement of terms is due on or before day one — see do you need a written employment contract for your first hire — and employers' liability insurance is a legal requirement from the same day, covered in what you legally need the day you hire someone. Doing all three in the same afternoon is far less painful than discovering them one at a time.

Common questions

When do my auto-enrolment duties start as a new employer?

On the day your first member of staff begins work. This is your duties start date and it applies immediately, regardless of whether the person is full-time, part-time or on probation, and regardless of how small the business is. There is no minimum number of employees before the rules bite. You can postpone the assessment of staff for up to three months if you notify them in writing within six weeks, but postponement does not delay your declaration of compliance deadline, which still runs five months from the original duties start date. The only common exemption is a company whose sole worker is a director without an employment contract.

How much do I have to pay into an employee's pension?

The legal minimum total contribution is 8% of qualifying earnings, of which the employer must pay at least 3%. Qualifying earnings for 2026/27 are the band of pay between £6,240 and £50,270, not total salary, which is where most employers over- or under-estimate the cost. On a £28,000 salary, qualifying earnings are £21,760, so the employer's minimum is £652.80 a year and the employee's share is £1,088 before tax relief. You are free to pay more than the minimum, or to calculate contributions on full salary instead, and many small employers do because it is easier to explain.

What is the penalty for missing the declaration of compliance?

The Pensions Regulator issues a fixed penalty notice of £400 for failing to comply, and if the breach continues it follows with an escalating penalty notice charged daily. The daily rate ranges from £50 for the smallest employers up to £10,000 for those with 500 or more staff, and it accrues until the breach is put right. The declaration is separate from the duty itself, so an employer who has genuinely set up a scheme and paid every contribution correctly can still be fined for not filing the form within five months of their duties start date. The declaration then has to be repeated every three years.

Can I ask an employee to opt out of the pension to save money?

No. Inducing a member of staff to opt out is a breach of the auto-enrolment rules and The Pensions Regulator treats it as one of the more serious ones. That covers suggesting it, offering higher pay in return, asking about it during recruitment, or implying that opting out would suit the business. The safest approach is to say nothing beyond the factual statutory information the scheme provider supplies. Staff are free to opt out entirely on their own initiative within one month of enrolment and receive a full refund of their own contributions, but that decision has to be genuinely theirs.