Workplace Pensions: What If You're a Sole Trader with Employees

Auto-Enrolment Applies to You

If you are a sole trader who employs staff, you are an employer for pension purposes. The auto-enrolment rules apply to you, and you must set up a workplace pension for eligible employees.

This obligation exists regardless of how many employees you have — even one employee triggers auto-enrolment duties.

Who Must Be Enrolled?

You must automatically enrol employees who are:

• Aged between 22 and State Pension age
• Earning above the earnings trigger (£10,000 per year for 2025/26)
• Working in the UK

Employees below these thresholds can opt in if they choose.

Minimum Contributions

The minimum contributions for auto-enrolment are:

| Contribution | Percentage | |-------------|-----------| | Employer minimum | 3% of qualifying earnings | | Employee minimum | 5% of qualifying earnings | | Total minimum | 8% of qualifying earnings |

Qualifying earnings are the band between £6,240 and £50,270 for 2025/26.

Example

An employee earning £25,000:

• Qualifying earnings: £25,000 - £6,240 = £18,760
• Employer contribution (3%): £562.80 per year
• Employee contribution (5%): £938 per year

Setting Up a Workplace Pension

1. Choose a Pension Provider

Popular auto-enrolment schemes include NEST (the government-backed scheme), The People's Pension, and NOW: Pensions. NEST has no set-up costs and low ongoing charges, making it a common choice for small employers.

2. Register with The Pensions Regulator

You must declare your compliance with The Pensions Regulator within five months of your duties starting date.

3. Assess Your Staff

Determine which employees are eligible for auto-enrolment based on their age and earnings.

4. Enrol Eligible Employees

Write to eligible employees informing them they have been enrolled and explaining their rights, including the right to opt out.

5. Make Contributions

Deduct the employee's contribution from their pay and add your employer contribution. Pay both to the pension scheme by the required deadline.

6. Maintain Records

Keep records of auto-enrolment decisions, opt-outs, and contributions for at least six years.

What About Your Own Pension?

Auto-enrolment covers your employees, not you. As a sole trader, you do not count as an employee of your own business. You must arrange your own pension separately through a personal pension or SIPP.

The Cost to Your Business

Employer pension contributions are an allowable business expense, reducing your taxable profit. They also attract employer's National Insurance relief — employer pension contributions are not subject to NI.

For a sole trader with one employee earning £25,000, the annual cost is approximately £563 — fully tax-deductible.

Penalties for Non-Compliance

The Pensions Regulator can impose penalties for failing to comply:

• Fixed penalty: £400
• Escalating daily penalties: £50 to £10,000 per day depending on the number of staff

Take your obligations seriously and set up auto-enrolment on time.

Use Accounted to track your employee costs and ensure pension contributions are correctly recorded as business expenses.

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Your employees' retirement matters too. Sign up for Accounted and let Penny help you manage both your own finances and your employer obligations.