An Employer’s Guide to Workplace Pension Contributions

In 2024, employees contributed 27% of workplace pension savings, employers contributed 62%, and income tax relief made up the remaining 11%. As an employer, your contributions alone form the largest part of your employees' retirement savings, with the typical contribution being 3%, 4% from your employee and 1% tax relief.

Workplace pension contributions play a crucial role in supporting the long-term financial well-being of employees, so it’s important to get them right.

This guide will help you understand the different types of pensions available, 

how contributions work, why they matter, and how to manage them effectively. It also explains HMRC and The Pension Regulator requirements, showing you how to stay compliant across different types of pension schemes and avoid penalties.

Workplace pension contributions are payments made by both the employer and the employee into a pension pot, most commonly referred to as a ‘contribution scheme’. These contributions build retirement savings over time and are automatically deducted via payroll.

Employer vs employee contributions

There are auto-enrolment minimums for pension contributions: 

• Employer: 3%
• Employee: 4% 
• Tax relief: 1%

Total: 8% 

Eligibility Categories 

Grouping your employees into the correct categories ensures accurate pension enrolment.

HR and finance teams need to understand how pension contributions work, as this ensures your organisation stays compliant with auto-enrolment laws, avoids penalties, and accurately budgets for employer contribution costs. It also reduces the risk of payroll errors such as incorrect deductions, missed enrolments or late payments, which can lead to financial penalties and employee dissatisfaction.

Workplace pension contributions are a core part of payroll operations. Every pay period, as an employer, you must calculate and pay the correct pension amounts for your employees. These payments, combined with employee contributions and HMRC tax relief, form the foundation of auto-enrolment. Getting these calculations right protects your business from compliance issues, keeping payroll running smoothly and ensures your employees receive the pension support they’re entitled to.

Your Employer Responsibilities

As an employer, you have several legal responsibilities that come under auto-enrolment. You must enrol eligible employees and re-enrol anyone who has opted out every three years. You must also submit a declaration of compliance to the Pensions Regulator.  

You are responsible for calculating minimum employer contributions correctly and paying them to your pension provider on time. Part of this duty includes keeping accurate records and monitoring your employees, such as when an employee turns 22 or when their earnings exceed £10,000, so you can enrol them at the right time. 

For example, if an employee earns £32,000, only their qualifying earnings between the lower and upper thresholds count towards pension contributions. If their qualifying earnings from their total are £25,760, your 3% contribution would be £772.80  for the year. 

Employee Contributions

Employee contributions are deducted automatically via payroll. These are calculated using qualifying earnings and must meet the statutory minimum of 4%, supported by 1% tax relief. Employees can choose to contribute more, and you may offer salary sacrifice as an option. Allowing both you and the employee to save on National Insurance while boosting their pension contributions. 

A popular option that can lower national insurance costs for both you and your employees while boosting pension savings.

For the 2025-26 tax year, as an employer, you must contribute at least 3% of qualifying earnings. Your employees contribute 4%, with HMRC adding 1% tax relief, bringing the total to 8%.

Qualifying earnings only apply to income between the lower and upper thresholds, so the amount you pay can vary, especially for part-time or commission-based staff. To ensure full compliance, you must be aware of these changes to contributions, which will enable you to manage costs effectively. 

Alternative option - Keeping track of these thresholds is essential for accurate budgeting and full compliance.

For example, using the same example as before, if an employee earns £32,000, you would first take away the ‘lower earnings threshold’ of £6,240, as earnings below this are excluded. 

32,000 - £6,240 = £25,760 (Qualifying earnings)
Employer contribution 3% = £772.80
Employee contribution 4% = £1,030.40
Tax relief 1% = £257.60 (Added by HMRC)

Total = £2,061.80 (Minimum 8% contribution)  

Most employers use ‘Defined Contribution Schemes’ in the UK. For this scheme, both you and the employees contribute a set percentage of qualifying earnings into individual pension pots. The pension provider then invests these contributions, and the final retirement value depends on total contributions and investment performance over time.  

As an employer, it’s your responsibility to ensure all payments are accurate and submitted correctly. This includes accurately applying qualifying earnings laws, updating contributions when an employee changes their rate, and maintaining payroll data consistency with the requirements of the pension schemes.

This isn’t just about compliance; it’s about supporting your employees’ long-term financial well-being. 

Salary Sacrifice Arrangements

Salary sacrifice is an alternative way for employees to contribute to their pension, and it can offer financial benefits to both you as an employer and your employees. In a salary sacrifice arrangement, any employee agrees to exchange part of their gross salary for an employer pension contribution. This increases the total pension amount while reducing national insurance contributions for both the employer and employee. 

However, salary sacrifice arrangements must be put in place with careful consideration to ensure they remain compliant and beneficial. You must ensure all agreements are correctly documented, that payroll systems are updated to reflect the revised salary, and that the reduced salary never falls below the National Minimum Wage. Pension contributions must be calculated based on the amount after salary sacrifice, and all communications to employees must comply with legal requirements. 

When managed correctly, salary sacrifice can be a highly effective, tax-efficient option. But, it requires accurate payroll management to keep everything compliant.  

Other Scheme Types

Some employers operate alternative pension arrangements, each with their own rules and payroll considerations. 

Defined Benefit Schemes - These are often used in the public sector or large legacy employers. They provide employees with a guaranteed income at retirement based on their salary and years of service. Unlike defined-contribution schemes, contributions are not tied to investment performance. Employers contribute at fixed levels set by the scheme, which can be significantly higher and more complex. 

Popular Pension Providers - Nest, The People’s Pension and NOW: Pensions. Both the employee and employer must pay a percentage of qualifying earnings into the employee's pension pot. But each provider has its own processes for records and submissions. As the employers, you must ensure your payroll system aligns with the provider's requirements to avoid delays or compliance issues. 

Payroll plays a critical role in ensuring workplace pension compliance. Every pay cycle requires accurate calculations, correct deductions and on-time submissions to your pension provider. Even small errors, such as missing an employee's re-enrolment date or using incorrect contribution percentages, can quickly lead to compliance breaches, penalties from The Pensions Regulator and frustrated employees. 

Some of the most common errors include misclassifying employees, late or incorrect payments and failing to keep up with regulatory changes. These issues are avoidable with the right processes in place, and in doing so, you protect both your business and your employees. 

Pension Compliance Checklist for HR & Finance Managers

• Are the contribution percentages correct for every employee group?
• Is auto-enrolment applied correctly based on earnings and age?
• Are re-enrolment dates tracked and actioned on time?
• Are pension files submitted to the provider without errors or delays?
• Are new starters and leavers updated accurately in payroll?
• Are salary sacrifice agreements documented and compliant?
• Are you keeping up with statutory changes issued by TPR or HMRC?

Payroll Solution Services handles every aspect of workplace pension management and compliance, from auto-enrolments and assessments to contribution submissions and re-enrolment monitoring. Our team stays ahead of regulatory changes so you don’t have to, taking the pressure off HR and finance teams. 

We ensure your payroll system is fully compliant with each provider’s submission requirements, reducing errors and preventing delays. By partnering with Payroll Solution services, you gain a hands-on, expert payroll team dedicated to compliance, accuracy and stress-free processing every single pay cycle. 

Ensure accuracy, compliance and peace of mind with payroll experts. Get in touch today.

Workplace pensions can be complex, but with the right support, they don’t have to be. With Payroll Solution Services managing your contributions, submissions and compliance, you can focus on your people and your business, while we handle the details.

Let Payroll Solution Services manage your workplace pension contributions, so you can focus on running your business. 

Contact us today to find out how we can streamline your payroll and remove the stress from compliance. 

What is the minimum employer pension contribution?

The minimum employer contribution is 3% of an employee's qualifying earnings. 

Do employers have to contribute to a pension for all staff?

No, employers are required to contribute to a pension for all eligible staff. As outlined within the blog’s eligibility categories. 

How do contributions work for part-time workers?

If your salary is below £10,000 per year, your employer is required to enrol you automatically into a workplace pension. However, if your annual earnings are above £6,240 but still below £10,000, you have the right to opt into a pension scheme and contribute to your pension, once you have requested it. 

When do employers need to re-enrol employees?

Employers must re-enrol employees every 3 years.  As an employer, it is your responsibility to assess your workforce and re-enrol any eligible employees who have previously opted out of your pension scheme.

Even if none of your employees need to be put back into the pension scheme, you must submit a re-declaration of compliance confirming you have met all your responsibilities. These are legally required, and failure to complete them can result in financial penalties. 

How does salary sacrifice affect employer pension contributions?

The amount sacrificed by the employee is added to their pension as an employer contribution, meaning the total pension contributions stay the same or can even increase, with no deduction in take-home pay. 

Employers save on National Insurance Contributions because the employee's gross salary has decreased.