Auto-Enrolment Pension for Trade Businesses UK — What Employers Must Do (2026)

1. What auto-enrolment actually is

The Pensions Act 2008 introduced a legal duty requiring all UK employers to automatically enrol eligible workers into a qualifying workplace pension scheme. The key word is automatically — you do not wait for your employee to ask. You enrol them, you deduct their contributions, and you make your own employer contribution on top. The worker then has a one-month window in which they can choose to opt out.

The intention behind the legislation was to reverse decades of under-saving for retirement. By making the default “enrol unless you actively choose otherwise,” far more workers end up with pension savings. As the employer, you play a central role in making that happen — and the law gives you no discretion about whether to participate.

The Pensions Regulator is the government body responsible for enforcing compliance. TPR can investigate any employer, issue fixed penalty notices, and escalate to daily fines and criminal prosecution for those who persistently ignore their duties. They actively cross-reference HMRC payroll data to identify employers who are likely to have eligible workers but have not registered a pension scheme.

2. When you become subject to auto-enrolment

Your auto-enrolment duty begins the day you take on your first employee. There is no grace period from the moment of hiring. The legislation applies to all UK employers regardless of size — a trade business with a single employee has the same fundamental obligations as a large contractor with hundreds of staff.

Importantly, “employee” for pension purposes is not limited to full-time permanent staff. Part-time workers and temporary workers are included. Agency workers may also be covered depending on the arrangement. If someone is legally an employee — even if they only work a few days a week — you must assess them for auto-enrolment.

CIS subcontractors are not employees. If you are a sole trader who uses subcontractors registered under the Construction Industry Scheme (CIS), auto-enrolment does not apply to those working relationships. CIS workers are self-employed and responsible for their own pension arrangements. Similarly, if you are a sole trader working entirely alone — no employees, just subcontractors — auto-enrolment does not apply to you at all. The duty only arises when you employ someone.

3. Who must be enrolled — the three categories of worker

Not every worker is treated the same under auto-enrolment. The legislation divides workers into three categories, and the category determines what you must do:

Eligible jobholders — mandatory auto-enrolment

These workers must be automatically enrolled. A worker is an eligible jobholder if they meet all three conditions:

• Aged between 22 and State Pension age
• Earning above £10,000 per year from that single employer
• Normally working in the United Kingdom

All three conditions must be met simultaneously. A 25-year-old earning £9,500 per year is not an eligible jobholder because their earnings fall below the £10,000 threshold. A 21-year-old earning £15,000 is not an eligible jobholder because they are under 22. You must assess every worker against all three criteria.

Non-eligible jobholders — right to opt in

Workers who are aged 16–21 or State Pension age to 74, or who earn below £10,000 but above £6,240 per year, are non-eligible jobholders. You do not have to enrol them automatically, but they have a legal right to opt in to the pension scheme if they ask. If they do opt in, you must pay employer contributions just as you would for an eligible jobholder.

Entitled workers — right to join

Workers under 16, over State Pension age, or earning below £6,240 per year are entitled workers. They can request to join a pension scheme, but you are not required to make employer contributions if they do. Workers who are already members of a qualifying pension scheme at the time of assessment are excluded from the auto-enrolment process for that scheme.

4. Contribution rates and qualifying earnings

The minimum total pension contribution is 8% of qualifying earnings, split between you and your employee. The legal minimum breakdown is:

• At least 3% from you as the employer
• At least 5% from the worker (this includes tax relief added by the pension provider)

You can contribute more than 3% if you choose — some employers contribute the full 8% themselves as a recruitment and retention benefit — but the legal floor is 3% employer, 5% employee (including tax relief).

What “qualifying earnings” means

Qualifying earnings is not the same as total pay. It is the portion of earnings that falls between the lower earnings threshold and the upper earnings threshold. For 2026/27, those thresholds are:

So if your employee earns £30,000 per year, their qualifying earnings are £30,000 − £6,240 = £23,760. The minimum employer contribution is 3% of that: £712.80 per year. This is a meaningful addition to the total employment cost and must be factored into your hiring calculations.

Some pension schemes use a different basis for calculating contributions — for example, contributions on total pay rather than just the qualifying earnings band. These can meet the auto-enrolment minimum if the resulting contribution is at least as high as the qualifying earnings calculation would produce. Your pension provider will confirm the basis they use.

5. Choosing a pension provider

You must choose a qualifying pension scheme before you can enrol workers. Not every pension scheme meets the auto-enrolment standard, so you need to confirm your chosen provider offers a “qualifying scheme” for auto-enrolment purposes.

NEST — the government-backed default

NEST (National Employment Savings Trust) was specifically designed for auto-enrolment and is required by law to accept any employer, regardless of size or sector. This makes it the lowest-friction option for small trade businesses that just need a compliant scheme without going through an application or approval process.

NEST charges are: 0.3% per year on the total value of a member's pot, plus a 1.8% contribution charge on each new contribution paid in. There are no setup fees. For most small employer situations with modest pot sizes, these charges are competitive and the simplicity of setup often outweighs the slight cost difference compared to other providers.

Other providers worth considering

• The People's Pension — a well-regarded mutual provider used widely in the construction and trades sector. Straightforward to set up, no contribution charge, annual management charge of around 0.5%.
• NOW: Pensions — designed for auto-enrolment with simple employer admin. Charges vary; typically an annual management charge of around 0.3–0.5% depending on scheme size.
• Legal & General Workplace Pension — larger provider with a wider investment range, more suitable if you anticipate growing your team significantly or want more investment flexibility for employees.

For most small trade businesses with one to five employees, NEST or The People's Pension are the most practical choices. The most important factors to evaluate are: ease of payroll integration, ongoing admin burden, and whether your payroll software connects directly to the scheme (most do for NEST and People's Pension, which removes manual contribution uploads).

6. How to set up auto-enrolment

The setup sequence matters. Do it in the wrong order and you can find yourself in breach before you have even started.

1. Register with your chosen pension scheme. Go to your provider's website and complete the employer registration. You will need your PAYE reference number from HMRC and basic company details. NEST registration is free and can be completed online in under an hour.
2. Identify your staging or duties start date. For new employers, your duties start date is the day your first employee starts work. For existing employers who have not yet enrolled (for example, if you recently hired your first member of staff), your duties start date is that same first day of employment.
3. Assess your workforce. Categorise every worker as an eligible jobholder, non-eligible jobholder, or entitled worker, based on their age and earnings at the duties start date.
4. Enrol eligible workers within 6 weeks of them becoming eligible. If an existing worker crosses the earnings threshold — for example, because you give them a pay rise — you must reassess them and enrol them if they now qualify.
5. Set up payroll deductions. Configure your payroll software to deduct the employee contribution each pay period and to calculate and record the employer contribution. Most payroll tools (Sage, QuickBooks, Xero Payroll) have built-in auto-enrolment functionality.
6. Write to each enrolled worker. You must provide every enrolled worker with a written enrolment letter explaining that they have been enrolled, the name of the pension scheme, the contribution rates, and their right to opt out. Most pension providers supply template letters.
7. Keep records. You must retain records of your pension scheme details, the contributions you have made, and all worker communications for at least six years. TPR can request these during an investigation.

7. Opt-outs — what happens and your re-enrolment duty

Once you have enrolled a worker, they have a one-month opt-out window. This window runs from the later of: the date they were enrolled, or the date they received their enrolment letter. If they opt out within this window, you must refund any contributions that have been deducted from their pay in full. You cannot encourage or pressure a worker to opt out — doing so is a criminal offence.

Opt-outs must be processed via the pension provider's own opt-out form — you cannot accept a verbal opt-out or an informal email. The worker must make the request directly to the pension provider or through the provider's online portal. Once the opt-out is confirmed, stop deducting contributions and arrange the refund.

Re-enrolment every 3 years

Workers who have opted out do not stay opted out permanently. Every three years, you must re-enrol any eligible workers who have previously opted out or ceased membership. This is called re-enrolment, and your re-enrolment date falls approximately three years after your original staging or duties start date.

At re-enrolment, you must reassess all your staff — including those who opted out — and automatically re-enrol anyone who is now an eligible jobholder. They can opt out again if they choose, but you must go through the full enrolment process each time. Failing to re-enrol on time carries the same penalties as failing to enrol in the first place.

8. Declaration of Compliance — the step most small employers miss

After you have enrolled your eligible workers, you must complete a Declaration of Compliance on The Pensions Regulator's website. This is a formal declaration confirming that you have met your auto-enrolment obligations. It is not automatic — you have to actively go and complete it.

The deadline is within 5 months of your duties start date. For a new employer whose first employee started on 1 January 2026, the declaration must be submitted by 31 May 2026. Missing this deadline results in a £400 fixed penalty notice, issued automatically. There is no reminder system — TPR will not prompt you. You have to track this yourself.

The declaration takes around 15 minutes to complete online and asks you to confirm: the pension scheme you have used, the number of workers you have enrolled, your company details and PAYE reference, and the date you completed your assessment. Keep a note of your Declaration of Compliance reference number once submitted — this is your evidence of compliance if TPR ever contacts you.

At re-enrolment (every three years), you must submit a new re-declaration of compliance within five months of your re-enrolment date. The same £400 fixed penalty applies for missing the re-declaration deadline.

9. Penalties for non-compliance — how TPR escalates

TPR has a structured escalation process. It does not immediately prosecute — it typically begins with a compliance notice, then an unpaid contributions notice, then financial penalties. But if you ignore these or your non-compliance is wilful, the consequences become serious very quickly.

The most common mistakes that trigger penalties

• Not enrolling on time. The 6-week window from eligibility is strict. Many small employers miss it simply because they did not know about the deadline.
• Using the wrong earnings figures. Calculating contributions on total pay instead of qualifying earnings — or vice versa when using a non-qualifying earnings basis — results in under-contributions that TPR can investigate.
• Not completing the Declaration of Compliance. This is missed by a significant proportion of small employers. The £400 fine follows automatically.
• Not re-enrolling after 3 years. The re-enrolment date comes around and passes without action. By then, some of the workers who originally opted out may now be eligible and want to be in the scheme.
• Deducting contributions but not paying them to the scheme. This is treated very seriously. It is effectively withholding workers' money and can result in prosecution.