Keeping up with workplace pension duties is not just a legal requirement – it is a fundamental feature of people management. Knowing when to enrol, who is eligible, how to manage pension deductions, and what to do when workplace pension re-enrolment comes around can, at first glance, appear daunting; without due care, it can also lead to potential compliance risk.
In this month’s guide, we aim to support you through the payroll auto-enrolment and re-enrolment processes, and explain how outsourcing to a professional provider like MSP Payroll can help you stay compliant, keep your team satisfied, and reduce risk.
What is Pension Auto Enrolment and Re-enrolment?
Pension Auto Enrolment
Pension auto-enrolment was introduced to the UK in 2012 and, through a steady rollout, as of 2023, encompasses over 11 million eligible employees working for 2.3 million employers. It means that every employer must automatically enrol staff into a qualifying workplace pension scheme and make contributions on their behalf. This isn’t optional for employers; if a member of staff is employed by a business and meets the relevant eligibility criteria (see below), a workplace pension must be provided for them. For Payroll teams, this means knowing who is eligible and who can opt in, is important to processing salaries and pension contributions accurately.
Payroll teams should work closely with Human Resources or Reward teams to ensure that, as minimum wage or living wage increases, or if an employee’s salary increases, the payroll teams are notified that the employee is now eligible for auto-enrolment into the workplace pension scheme.
Pension Re-enrolment
Every three years, employers are required to conduct pension re-enrolment. This requires reassessing employees who were originally ineligible for auto-enrolment and had elected to opt out. If circumstances have changed and a worker is now eligible, they should be enrolled or re-enrolled into the scheme. Following this, the employer is required to update its declaration of compliance with the Pensions Regulator.
Re-enrolment is something that can be easily forgotten, and often, particularly in complex organisational structures, payroll teams are not notified about re-enrolments or newly eligible workers. This can lead to costly or time-consuming errors, affecting pension contributions and increasing the risk of non-compliance with the Regulator.
The Payroll Process for Pension Auto-Enrolment
With the correct processes in place, pension auto-enrolment should be an established facet of new employee onboarding. However, as businesses grow, so do increased structural complexities can lead to a lack of cross-functional communication between HR, L&D and Payroll colleagues. This is where risk, errors and penalties can be introduced. A robust induction review process, regular communications between departments or key employees and regular payroll pension reviews are essential for a risk-free, compliant pension enrolment framework.
Employee pension contributions
The total minimum contribution that must be made by combined payments from employee and employer must total 8% of the employee’s salary. This usually comprises of 5% from employees and 3% from the employer. While the employer’s contribution must be a minimum of 3%, if the organisation decides to pay more, then the employee can adjust their payments as long as the total minimum paid into the pension pot remains 8%.
The payroll team are responsible for submitting the pension contribution to the pension provider, which could be a government-backed scheme such as NEST or an independent company.
Contribution submissions are usually required early in the following month and are paid from the employer’s account on behalf of the employee, this must be clearly demonstrated on the employee’s payslip.
Employees can contribute more than 5% into their pension, and often, one of the challenges for organisations is providing a convenient way for employees to manage and understand their pension payments. Often, new employees joining a company already have a pension plan or even many existing pension plans across numerous providers. To support employees, the government are creating a pensions dashboard which is designed to allow employees to easily track their overall retirement position. Good pension management can often involve organising an independent pension advisor to provide professional advice to entitled workers on their pension planning, supporting employee financial wellbeing as well as ensuring pensions are simpler to manage for new colleagues.
Employer pension contributions
Employers have a legal duty to contribute a minimum of 3% of qualifying earnings into the employee’s pension. Some employers choose to go above this minimum as part of their benefits offering, but the statutory baseline must always be met. The total minimum an employee should receive in combined contributions should be 8% of their annual wage.
Good payroll processes ensure these payments are calculated and submitted accurately, and that contributions are reflected in payslips and employer records.
Deductions through payroll
Handling contributions directly through payroll ensures accurate real-time deductions and full alignment with tax and National Insurance. This also simplifies reporting and removes the need for manual intervention, provided your payroll software or service is set up correctly. Working with an established and proven Payroll services provider like MSP Payroll will reduce errors before they happen, as we work in partnership with your team to closely manage pension enrolment and contribution checks as they are calculated.
Record Administration
Employers must keep detailed records on:
- Who has been enrolled
- Opt-out and re-enrolment dates
- Contributions made
Without good payroll and pension integration, record-keeping can become rapidly disorganised. Outsourcing payroll ensures that compliance records are always up to date and easily accessible in the event of an audit or regulatory check.
MSP’s Payroll Specialists can provide a wide range of support services to ensure your payroll is administered correctly and compliant – click here to find out more.
Employee Eligibility, Opt-Outs and Re-enrolment
Employee Workplace Pension Eligibility
Not everyone qualifies for auto-enrolment. Employees are eligible if they:
- Are aged between 22 and the State Pension age
- Earn at least £10,000 per year (or £833 per month)
- Work in the UK
It’s the employer’s responsibility to assess staff eligibility regularly, not just at the point of hire. Best practice for many payroll teams is to calculate eligibility each month, ensuring enrolment is captured quickly and efficiently and saving time in the long term. Note that earnings thresholds are pro-rated by the frequency of payment, so if an employee is paid monthly, then they will be auto-enrolled as soon as they start earning £833 or more per month. If it is weekly, this amount will be £192 per week.
Managing auto-enrolment can become complicated for businesses with part-time or fluctuating-salary workers. With fluctuating earnings, monitor each pay reference period and ensure enrolment is arranged once an employee has earned above the eligibility threshold in the month. You must still enrol employees who earn higher than the eligibility criteria, even if they are only employed on short-term contracts. Automated assessment within a payroll system helps avoid mistakes and ensures no one slips through the net.
Employees Who Opt-out of Pension Auto-enrolment
Employees can choose to opt out of a workplace pension, typically within one month of being enrolled. While that might seem like the end of the process, it’s not. Employers must:
- Refund employee contributions within the opt-out window
- Continue to monitor these employees for future re-enrolment
- Keep records of opt-out notices and timings
It’s easy to lose track without a reliable process. An experienced payroll provider, such as MSP Payroll, will maintain clear records and manage this process with minimal disruption.
Pension Re-enrolment and Payroll
At the three-year mark, all employers must reassess their workforce and re-enrol any eligible employees who previously opted out. This can’t be skipped—even if you think no one qualifies. Missing a re-enrolment date or failing to submit your re-declaration to The Pensions Regulator can result in fines or legal action.
We can support your business by ensuring re-enrolment activities are executed on time, accurately and compliant with regulations. Chat to us to find out more.
How we can help
MSP Payroll offer a wide range of services designed to ensure your payroll is accurate, easy to administer and effective. We can:
- Support with calculation of salaries – so all staff, from starters to leavers, are paid on time when they expect it.
- We can provide pension administration, handle salary sacrifice requirements and create payslips for all employees.
- We can manage maternity and paternity pay, shared parental leave payments, sick pay and a wide range of other statutory payments.
- We can file returns and liaise with HMRC, as per your PAYE requirements.
- We can also incorporate and administer your benefits, payroll calculations and payments, from health insurance to company cars and stock options.
Payroll and Pension Auto Enrolment: Frequently Asked Questions
What is the auto-enrolment pension rule?
Auto-enrolment requires employers to:
- Assess eligibility
- Enrol qualifying employees
- Pay regular contributions
- Keep records and submit reports
It’s governed by The Pensions Regulator and organisations should ensure they correctly disclose their pension obligations in their declaration of compliance. Non-compliance can result in escalating penalties.
How are Contributions Paid to the Scheme?
Contributions are typically deducted through payroll and paid directly to the pension scheme via a direct debit setup between the employer and the chosen pension provider. MSP Payroll ensures these are calculated and submitted accurately every pay cycle.
What is the current auto-enrolment rate for pensions?
As of April 2024, the total minimum contribution is 8% of qualifying earnings:
- 3% employer minimum
- 5% employee contribution (including tax relief)
choose to contribute more, but never less. Whereas the employee level of contribution can be tailored based on the employer input into the pension pot. As long as the minimum monthly pension payment is 8% of salary, the employee can lower or raise their payment in line with employer provisions.
What is the Difference Between Salary Sacrifice and auto-enrolment?
Auto-enrolment is the legal requirement to enrol staff into a pension scheme and pay minimum contributions. A salary sacrifice arrangement is where employees agree to give up part of their salary, which the employer then pays into their pension. This can be tax-efficient, but it must be set up correctly through payroll.