[Image Source: Deposit Photos]

Hiring your first employee should rightfully be an exciting milestone in your startup or small business, particularly as the sector has recently been granted access to finance that’s driving investment and growth. However, one of the many legal responsibilities that comes alongside hiring someone is the now-automatic pension enrolment.

From the moment someone else comes onto your payroll, you’re legally obligated to assess their eligibility for a workplace pension. If they qualify, they must be automatically enrolled. For entrepreneurs and founders who are balancing numerous business processes, operations and responsibilities, as well as their family life, it’s important not to overlook this important step in growing your business.

A question on many business owners’ minds is: when should you start planning for your short- and long-term financial future? The answer is simple: the sooner the better. 

Getting firmly ahead of pension planning for both yourself and your employees ensures you’re complying with UK law, meeting your financial obligations, and providing a safety net for your family, your business, and your employees. This guide covers your legal duties, common pain points in enrolment, finding a pension provider, and tips to make the process straightforward and hassle-free. 

Please note all information in this guide is accurate as of October 2025 and reflects the 2025/26 tax year. Pension rules, contribution rates and regulations may change. For more information, please refer to the latest guidance from the Pensions Regulator.

Your legal pension obligations as a business owner

Automatic enrolment into a pension scheme isn’t voluntary. Under UK law, once you have an eligible employee, you must enrol them into a qualifying workplace pension scheme. However, determining who exactly qualifies is a different matter.

Eligibility criteria

Employees must exhibit three traits: 

1. They need to be at least 22 years old.
2. They need to be under State Pension age (currently 66).
3. They must earn over £10,000 annually (£833 per month).

If your new hire ticks all three boxes, you’re legally obliged to enrol them automatically into a legitimate UK pension provider scheme.

Employees who earn between £520 and £833 per month can opt into the scheme if they wish. If they do, employers must contribute on their behalf.

Minimum pension contribution rates

The minimum contribution rate stands at 8% of qualifying earnings (i.e. income between £6,240 and £50,270 per year). You, as the employer, must contribute at least 3%, with the remaining 5% typically coming from the employee’s wages, which includes tax relief.

Employee opt-out processes

While auto-enrolment is legally required, employees still have the right to opt out, which they can do one month after being enrolled. If they do, you must refund any contributions taken during that window. After the one-month opt-out window, they can still leave the scheme, but won’t be entitled to a refund.

You, as the employer, must re-enrol any eligible employees who’ve opted out every three years, even if the employee previously declined to participate.

Common SME pension obstacles

For SMEs, pension administration can quickly become a headache. Here’s why:

• Pension responsibilities begin straight after the first eligible employee joins, with no grace period to figure things out later.
• It’s quite an admin-heavy and manual process to enter details, check thresholds, and calculate contributions.
• Many SME business owners discover that their incumbent payroll software may not integrate easily with those belonging to pension providers. This requires manual integration, which can be arduous.
• The Pensions Regulator can request records at any time. You’ll need to demonstrate when employees were assessed, enrolled, or opted out, and prove that contributions were made correctly. Trying to reconstruct this months later can be a nightmare.
• TPR can issue fixed penalties if you don’t meet your legal pension duties. These can include fixed penalties of £400, plus daily fines ranging from £50 to £10,000 depending on your headcount. 
• Time spent dealing with pensions can quickly add up, which takes valuable resources and energy away from growing your business. 

Choosing the right pension scheme

One of the first decisions you’ll face is selecting a workplace pension provider. Many startups opt for The People’s Pension, one of the UK’s most popular schemes with over 6.9 million members and 100,000+ employers. It’s designed specifically with small businesses in mind: simple to set up, low-cost, and fully compliant with auto-enrolment regulations.

Other popular providers include NEST (National Employment Savings Trust), which was specifically created for auto-enrolment, and various commercial providers like Scottish Widows and Aviva. The key is choosing a scheme that’s TPR-approved and suits your business size and budget.

How to make the auto-enrolment process easier 

• Automatic eligibility assessments are part of many contemporary payroll software, which calculates employee age, earnings and thresholds each pay run. If their earnings increase mid-year, they can be enrolled automatically.
• The right payroll system calculates both employer and employee contributions, deducts the correct amount from each payslip, and submits data to your pension provider and, by extension, TPR.
• Many automated systems generate and send employee communications, ensuring deadlines are never missed and that everyone is notified with the correct, up-to-date information.
• Many solutions have built-in digital audit trails and compliance tracking, so if TPR get in touch, you can produce complete reports and records in seconds, rather than manually trawling through backlogs of data.
• It’s wise to prepare for this process before you hire your first employee. Research pension providers, compare their fees and features, and register with your chosen scheme. This way, when your new team member starts, you’re ready to enrol them immediately.
• Plan and budget for pension contributions as part of your monthly payroll processes anyway. Treat it as non-negotiable from the outset, like paying salaries or tax, or deducting student loans from income, and so on. Consider working with a professional adviser, particularly in the early stages. 

For detailed guidance on auto-enrolment duties, the government’s official resources are invaluable.

Automatic pension enrolment shouldn’t derail your startup’s momentum. For ambitious business owners in Merton, Mitcham or Wimbledon, getting pensions right from day one protects you from penalties, builds trust with your team, and demonstrates that you’re a professional, responsible employer, i.e. the kind of business that attracts and retains top talent.

Are you sharing valuable business advice like this with your audience? I help businesses communicate effectively on crucial topics like financial planning, and would be happy for you to contact me (Chloe Miller), to discuss how I can elevate your content and engage your readers.