Under automatic enrolment, an employer must pay at least 3% of an eligible worker's qualifying earnings into a workplace pension, within a total minimum of 8% from employer and worker together. For 2026/27, qualifying earnings are the slice of pay between £6,240 and £50,270 a year, and workers aged 22 to State Pension age earning at least £10,000 must be enrolled. Above the minimum, employer contributions are free of income tax and National Insurance for the employee, and normally deductible for the business.
The legal minimum under auto-enrolment
The minimum comes from section 20 of the Pensions Act 2008. A defined contribution scheme meets the quality requirement only if the employer pays at least 3% of the jobholder's qualifying earnings for the pay reference period, and total contributions reach at least 8%. In most schemes that splits as:
| Contributor | Minimum share of qualifying earnings |
|---|---|
| Employer | 3% |
| Worker (including tax relief) | 5% |
| Total | 8% |
The employer can pay more than 3% and let the worker pay less, as long as the total still reaches 8%. These percentages have applied since April 2019.
Qualifying earnings include salary, wages, bonuses, commission, overtime and statutory sick, maternity, paternity, adoption, shared parental, parental bereavement and neonatal care pay. Only the band between the lower and upper limits counts. As an illustration, a worker on £30,000 has qualifying earnings of £23,760 (£30,000 less £6,240). The employer minimum is therefore £712.80 a year and the total minimum £1,900.80. Some schemes calculate on full pay instead, which costs more but is simpler.
2026/27 thresholds
The Department for Work and Pensions reviews the thresholds each year. For 2026/27 it kept all three at their 2025/26 levels:
- Earnings trigger, £10,000 a year. Eligible jobholders earning at least this must be automatically enrolled;
- Lower limit of qualifying earnings, £6,240. Contributions are due on earnings above this. It also marks who can opt in and receive an employer contribution;
- Upper limit of qualifying earnings, £50,270. The legal minimum stops at this level, although many employers contribute on higher pay.
Workers who are not automatically enrolled can still ask to join, and the employer cannot refuse. If they earn more than £520 a month (£120 a week, or £480 over four weeks), the employer must pay the minimum contribution for them. At or below that, the employer need not contribute. An employer may postpone enrolment by up to three months, but must tell the worker in writing and let them join earlier if they ask.
Tax treatment for the employee
Employer contributions to a registered pension scheme are not a taxable benefit. Section 308 of ITEPA 2003 provides that no income tax arises on them, and they are not earnings for Class 1 National Insurance. That makes an employer contribution worth more than the same amount paid as salary. The employee avoids income tax and up to 8% employee National Insurance, and the employer avoids its 15% National Insurance.
Two limits still apply to the employee:
- Annual allowance. Employer contributions count towards the £60,000 annual allowance, and towards the tapered or money purchase allowance where those apply. See our guide to pension contribution limits;
- No relief limit. Unlike personal contributions, employer contributions are not capped at 100% of the employee's earnings. This is why owner-managers with small salaries often fund pensions through the company.
Tax treatment for the business
Under section 196 of Finance Act 2004, an employer's contributions are deductible in the period in which they are paid, not when they are accrued. A contribution accrued at the year end but paid after it falls into the next period. Contributions are also treated as revenue, not capital.
The deduction still has to pass the wholly and exclusively test. HMRC's Business Income Manual (BIM46035) says a contribution is allowable unless there is a non-trade purpose. For a director of a close company, HMRC should accept it where the overall remuneration package is comparable with what unconnected employees doing work of similar value receive. Where the package is excessive, HMRC looks at the whole package, not just the pension element.
Very large one-off payments may have to be spread. Section 197 spreads the relief over up to four periods where contributions in a period exceed 210% of the previous period's and the relevant excess is at least £500,000. Contributions funding cost-of-living increases for pensioners, or benefits for new members, are excluded from that test.
Salary sacrifice, and the 2029 change
Salary sacrifice (sometimes called salary exchange) converts part of an employee's pay into an extra employer contribution. Today it removes both employer and employee National Insurance on the sacrificed amount. It cannot take pay below the National Minimum Wage.
That changes from 6 April 2029. The National Insurance Contributions (Employer Pensions Contributions) Act 2026, which received Royal Assent on 29 April 2026, makes salary sacrificed into a pension above £2,000 a year liable to employee and employer Class 1 contributions. The detailed rules will be set in regulations. Income tax relief is unaffected. Ordinary employer contributions that are not paid in exchange for salary remain free of National Insurance. Employers using sacrifice for pension contributions above £2,000 a head should plan the 2029/30 payroll cost now.
Getting it right in practice
Most problems come from the wrong earnings definition in payroll, contributions paid late to the scheme, or new staff not assessed when their pay crosses the trigger. HMRC's and DWP's figures are on gov.uk's workplace pensions contributions page. Our guide to pension tax relief covers the employee's side.
Acumon's auto-enrolment service handles assessment, contributions and re-enrolment through payroll. Our pension administration team can model the 2029 salary sacrifice cap against your current scheme design.