Employment Contracts

by Kate Russell


The Pensions Act 2008 provides that employers must auto-enrol all eligible employees not already participating in a workplace pension scheme into a qualifying pension scheme. The threshold for automatic enrolment is aligned with the personal allowance for income tax. To encourage participation, employees’ pension contributions will be supplemented by employers’ contributions and tax relief. The Act also introduces the concept of ‘prohibited recruitment conduct’, which outlaws the making of recruitment decisions on the basis of whether or not an individual intends to opt out of automatic enrolment.

Employers will have to enrol eligible workers into a qualifying workplace pension arrangement, and choose the qualifying scheme(s) they adopt to discharge the newly-arising duty. They will have to make either a minimum three per cent contribution towards a defined contribution scheme (based on qualifying pensionable earnings) or offer membership of a defined benefit scheme or a certain hybrid scheme which either has a contracting out statement or meets the test scheme standard.

An eligible worker is an employee aged between 22 and state pension age and earning above the income tax personal allowance (this is £7,475 in 2011/12). Contributions will be payable on earnings between £5,035 and £33,540.

There will also be an ongoing duty to maintain qualifying pension provision for workers who are already members of qualifying schemes; or become members of such schemes.

The Employers’ Duties (Implementation) Regulations 2010 come into force on 1 September 2012. These Regulations set out the details of how employers’ duties under the Pensions Act 2008 and the Pensions Act 2011, which require employers to auto-enrol staff into a qualifying pension scheme and pay a minimum contribution, will be staged in over time.

A revised timetable for when employers of all sizes must start enrolling their staff in a workplace pension was published in January 2012. Large employers, those with 250 or more employees, will not face any change in the date they are due to start enrolling their staff.

Employer size (by PAYE scheme size) or other description

Automatic Enrolment duty date




250 or more members

1 October 2012

1 February 2014

50 to 249 members

1 April 2014

1 April 2015

Test tranche for less than 30 members

1 June 2015

30 June 2015

30 to 49 members

1 August 2015

1 October 2015

Less than 30 members

1 January 2016

1 April 2017

Employers without PAYE schemes

1 April 2017

- - -

New employers Apr 2012 to Mar 2013

1 May 2017

- - -

New employers Apr 2013 to Mar 2014

1 July 2017

- - -

New employers Apr 2014 to Mar 2015

1 August 2017

- - -

New employers Apr 2015 to Dec 2015

1 October 2017

- - -

New employers Jan 2016 to Sep 2016

1 November 2017

- - -

New employers Oct 2016 to Jun 2017

1 January 2018

- - -

New employers Jul 2017 to Sep 2017

1 February 2018

- - -

New employers Oct 2017

Immediate duty

- - -

Automatic enrolment will begin in October 2012. All existing firms will have enrolled their staff by April 2017, followed by all new employers by February 2018.

The level of pension contributions will be phased in over time to help employers and individuals adjust. Full contributions will have to be paid from 1 October 2018.

A consultation and draft regulations with more detailed information will be published shortly.

There is a detailed table setting out the revised automatic enrolment dates for all employer sizes in the actions for employers section of the Law on the Move folder.

There will be a three-month waiting period before employers are required to enrol workers into their designated scheme. During this period, workers can choose to opt in to start saving straight away.

The Government has now increased its estimates for the administrative burden on employers in year one. It anticipates a cost of between £5 and £20 per employee in large firms (defined as 250+ employees). It will be between £15 and £30 in medium firms (defined as from 50 to 249 employees); the cost will be between £25 and £50 in small firms (defined as from 5 to 49 employees). In micro firms, which are fewer than five employees, the cost is expected to be between £70 and £130 per employee.

Employees can opt out, but this has deliberately been made difficult. Where they do opt out, they will be automatically enrolled unless they opt out again. Employers will be given the flexibility to re-enrol workers three months either side of their automatic re-enrolment date.

Fixed penalty notices of £400 will be issued against employers who fail to engage with the reforms. Escalating penalty notices intended to entrench employer behaviour by providing a deterrent to the most serious and persistent non-compliance will depend on the size of the employer from £35 per day for employers with one to four workers to £10,000 per day for employers with 500+ workers.