Employer Pension Costs — Auto-Enrolment Minimums Explained

What auto-enrolment requires

Auto-enrolment is the legal requirement for employers to automatically enrol eligible workers into a qualifying workplace pension scheme and to make a minimum contribution towards it. The duty has applied to all employers since 2018, following the staging date rollout that brought smaller employers into the system progressively from 2012. There is no minimum employer size threshold — even a business with a single eligible employee must comply.

Eligible workers are those who are aged between 22 and State Pension Age, earn more than £10,000 per year from that employer, and work in the UK. Workers who are aged 16–21 or from State Pension Age to 74, or who earn between £6,240 and £10,000, can opt in but do not have to be enrolled automatically. The employer must still contribute at the minimum rate for any worker who opts in. Workers earning below £6,240 cannot be enrolled at all.

Employers must enrol eligible workers within six weeks of their start date or within six weeks of an existing worker becoming eligible (for example, because they turn 22 or their earnings rise above £10,000). Every three years, employers must re-enrol all eligible workers regardless of whether they opted out previously. The Pensions Regulator enforces these duties and can issue fixed penalty notices and escalating fines for non-compliance.

The minimum contribution rates and qualifying earnings band

The minimum total contribution under auto-enrolment is 8% of qualifying earnings, of which the employer must contribute at least 3% and the employee at least 5% (inclusive of any tax relief added by the pension provider). These have been the minimum rates since April 2019 and remain unchanged for 2026/27. Employers can choose to contribute more than 3%, and many do — but 3% is the statutory floor.

Qualifying earnings are not the same as gross salary. For 2026/27, qualifying earnings are the portion of the employee's pay that falls between the lower earnings limit of £6,240 per year and the upper limit of £50,270 per year. Pay below £6,240 is excluded from the calculation. Pay above £50,270 is also excluded for the purposes of the statutory minimum — an employer contributing only the minimum on a £100,000 salary calculates their pension cost on £50,270 minus £6,240 = £44,030, not on the full salary.

Some pension schemes use a different earnings definition — total earnings rather than qualifying earnings — which produces a higher contribution. Employers using a total-earnings basis meet the statutory minimum as long as the actual contribution percentage is sufficient to pass the certification test. For planning and budgeting, use the qualifying earnings band unless your scheme explicitly uses a wider earnings definition.

The real cost per employee at different salaries

At a £25,000 salary: qualifying earnings are £25,000 minus £6,240 = £18,760. Employer minimum pension is 3% of £18,760 = £562.80 per year, or approximately £47 per month. Total above-salary statutory cost (NI plus pension): £3,000 NI + £563 pension = £3,563 per year, placing total employer cost at approximately £28,563.

At a £35,000 salary: qualifying earnings are £35,000 minus £6,240 = £28,760. Employer pension is 3% of £28,760 = £862.80 per year (approximately £72 per month). With employer NI of £4,500 per year, total above-salary statutory cost is approximately £5,363 per year. Total employer cost: approximately £40,363.

At a £50,000 salary: qualifying earnings are capped at £50,270 minus £6,240 = £44,030. Employer pension is 3% of £44,030 = £1,320.90 per year. Employer NI is £6,750. Total above-salary statutory cost: approximately £8,071 per year. Above £50,270, employer pension on qualifying earnings does not increase further — the statutory minimum pension cost is effectively fixed at around £1,321 for all salaries above that level. Employer NI, however, continues to rise with no upper cap.

Choosing a pension scheme

Employers must use a qualifying pension scheme — one that meets the minimum standards set by The Pensions Regulator. NEST (the National Employment Savings Trust) is a government-backed scheme available to any UK employer with no minimum size requirement and no obligation to accept or reject employers. It is the most common default choice for small employers setting up auto-enrolment for the first time.

Other options include master trust arrangements such as The People's Pension, NOW: Pensions or Smart Pension, which compete on charges, investment options and employer support services. Larger employers or those with specific investment or reporting needs sometimes use a group personal pension (GPP) arranged through a major insurer such as Aviva, Legal & General or Scottish Widows. The GPP route typically requires an employer contribution above the minimum to attract adviser and provider interest.

Whichever scheme you use, you must complete a declaration of compliance with The Pensions Regulator within five months of your staging date or new employer date. Failure to complete the declaration is one of the most common compliance errors and can result in fines even where the pension contributions themselves are correct. Set a diary reminder for the declaration deadline at the point of setting up the scheme.

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Frequently asked questions

How much does it cost to employ someone in the UK?

The true cost to employ someone in the UK is typically 15–20% above gross salary. At £30,000: employer NI £3,750 + pension £713 = approximately £34,463 per year. At £50,000: employer NI £6,750 + pension £1,313 = approximately £58,063 per year. Adding workplace overheads of £2,000–£5,000 can bring the total to 20–25% above the headline salary.

What is the employer NI rate for 2026/27?

For 2026/27, employer Class 1 National Insurance is charged at 15% on employee earnings above the secondary threshold of £5,000 per year (£96 per week, £416 per month). This rate increased from 13.8% in April 2025, when the threshold was simultaneously cut from £9,100 to £5,000. Both changes apply from 6 April 2025.

How much employer NI do I pay on a £35,000 salary?

At £35,000 salary, employer NI for 2026/27 is £4,500 per year — 15% on £30,000 of earnings above the £5,000 threshold. That is £375 per month. In 2024/25, the same salary produced £3,585 in employer NI. The April 2025 changes therefore add £915 per year on this salary alone.

What is Employment Allowance and who can claim it?

Employment Allowance lets eligible employers reduce their annual employer NI bill by up to £10,500 in 2026/27, increased from £5,000 in 2024/25. The previous £100,000 NI bill eligibility cap has been removed, so more businesses qualify. Companies where the only paid employee is also a director cannot claim. Apply through payroll software via the Employer Payment Summary indicator.

What is the total employer cost above salary?

Beyond salary, employer cost includes: employer NI (15% on earnings above £5,000), employer pension (minimum 3% of qualifying earnings between £6,240 and £50,270), and overheads such as equipment, software and workspace. For most UK salaries this adds 12–20% above headline pay. Use the inputs above to set your exact pension rate and overhead figure.

What changed for employers in April 2025?

Three changes took effect from 6 April 2025: the employer NI rate rose from 13.8% to 15%, the secondary threshold was cut from £9,100 to £5,000, and Employment Allowance increased from £5,000 to £10,500 with the eligibility cap removed. For a £30,000 salary, annual employer NI increased from approximately £2,884 to £3,750 — a rise of £866 per year.

How is employer NI different from employee NI?

Employer NI is a cost paid by the employer on top of gross salary — it does not reduce take-home pay. Employee NI is deducted from the employee's wages instead. For 2026/27, employees pay 8% on earnings between £12,570 and £50,270, then 2% above that. Employers pay 15% on all earnings above £5,000 with no upper cap. This calculator covers the employer side; for employee take-home pay see AfterTaxSalary.co.uk.

What are employer costs in the UK?

UK employer costs in 2026/27 are: gross salary, employer NI at 15% on earnings above £5,000, employer pension at minimum 3% of qualifying earnings (£6,240–£50,270), and any operational overheads such as equipment or software. For a £35,000 salary, statutory employer costs (NI + pension) add approximately £5,363/year before overheads.

How much do I cost my employer in the UK?

If you earn £35,000, you cost your employer roughly £40,363/year — your salary plus £4,500 employer NI and £863 minimum pension. At £50,000, the total is approximately £58,063. Your employer pays these on top of your salary; they are not deducted from your pay. Use this calculator to see the exact figure for your salary.

Is this a PAYE cost calculator for employers?

Yes. PAYE employer costs include employer NI — calculated at 15% above £5,000 for 2026/27 — plus the employer's auto-enrolment pension contribution. The full calculator models both alongside any overhead assumptions to give a total PAYE-basis employer spend per employee.

What is a cost to company (CTC) salary in the UK?

Cost to company (CTC) in the UK refers to the total annual cost of an employee to their employer — salary, employer NI, pension, and overheads combined. A £35,000 CTC salary typically means a gross salary of roughly £30,000–£32,000 once the employer's NI and pension obligations are included in the total. Use this calculator to work backwards from a CTC budget to a gross salary.

Tools worth considering

UK payroll and HR tools. Editorial summary only — not endorsements.

Xero Payroll

Cloud payroll bundled with Xero accounting. Handles RTI submissions, auto-enrolment and payslip generation. Commonly used by UK small businesses already on Xero for bookkeeping.

See Xero Payroll →

QuickBooks Payroll

Payroll add-on for QuickBooks. Used by UK small employers for PAYE, NI, pension and HMRC RTI. Integrates with QuickBooks accounting.

See QuickBooks Payroll →

Sage Payroll

Long-established UK payroll software with HMRC recognition. Works standalone (without Sage accounting) and is widely used in small businesses and accountancy practices.

See Sage Payroll →

Employment Hero

HR and payroll platform used by growing UK teams. Combines contracts, onboarding, leave management and payroll in one system. HMRC RTI integrated.

See Employment Hero →