Company pension contributions

Find out more about the company pension contributions you need to make as an employer.

Published: 15 Dec 2025

Key points

You’re legally required to contribute at least 3% of your employees’ qualifying earnings to their workplace pension, in order to comply with your auto-enrolment responsibilities.
There are different ways to calculate contributions, so you can choose the best way for your business.
You’re required by law to write to all eligible staff individually to explain how auto-enrolment into the workplace pension scheme will affect them and how the scheme works.

What is a pension contribution?

It’s the percentage of an employee’s salary paid into their pension. The law says you must make pension contributions for certain employees each month that meet the minimum contribution levels set for auto-enrolment. If you don’t, you may have to pay a fine or penalties.

It’s important to remember this applies to business of all sizes – even if you have just one employee.

What’s the minimum pension contributions I have to pay?

The table shows the current level of minimum contributions:

Employee contribution

(from gross salary)

Employer’s contribution

Total contribution

5% of employee’s salary

3% of employee’s gross salary

8% of employee’s gross salary

You can choose to pay higher pension contribution levels, but you can’t pay less. Employee contributions are calculated and deducted from pay differently depending on the types of pension scheme.

The government fixes the rate of minimum contributions, but you have some choice in deciding how you work out what you need to pay into your employees’ pensions.

For instance, you could choose to pay a fixed amount instead of calculating percentages, provided this is at least the equivalent of the minimum contribution. You also have some choice around the question of what counts as earnings – more on this below.

What types of earnings do the contributions apply to?

When you’re setting up your workplace pension, you might be unsure what counts as earnings when you’re working out pension contributions. You’re likely to be asking questions about whether it’s just basic salary or whether you have to include overtime or bonus payments and so on.

You and your pension provider need to decide on what counts as qualifying earnings when you set up your workplace pension. Here’s an overview of the different ways to calculate pension contributions:

Contributions based on qualifying earnings

The portion of an employee’s earnings normally used when calculating minimum contributions is known as qualifying earnings. This includes:

Basic pay
Overtime
Bonuses
Commission
Statutory sick pay
Statutory maternity, paternity or adoption pay

Within this, there’s a minimum and maximum level of earnings seen as qualifying earnings. In the 2025/2026 tax year, qualifying earnings start at £6,240 and end at £50,270.

You can make your actual contributions on this basis or calculate them using one of the three bases – known as ‘sets’ – which we’ve set out in the following few tabs.

Pensionable pay (set one)

If you calculate pension contributions based on basic pay, you’ll only use an employee’s contractual and statutory payments.
You can exclude additional payments like overtime, commission and bonuses if you calculate pension contributions on this basis.

Pensionable pay (set two)

Pensionable pay means any income eligible for pension deductions.
It can include any other payment or benefits outlined as pensionable in an employee’s contract of employment.
The portion of your employees’ pay you base contributions on must be at least 85% of their total pay.
If you pay overtime, commission or bonuses – which change year on year – you would normally need to look at past data to see whether you are likely to meet this minimum before certifying on this basis. If you’re taking on your first employees, you’ll need to assess how you intend to pay them and see whether their basic pay is likely to be at least 85% of their total pay package.

Total pay (set one)

Total pay is 100% of an employee’s earnings.
It includes any commission, bonuses, overtime and so on.

Which approach to calculating contributions would be best for me?

We know it’s not easy getting to grips with calculating contributions. To help you, we’ve included examples of the different ways to do that below.

There’s a lot to consider and understand when you’re deciding which method would work best for your business and your employees. We’d recommend you get professional advice if you’re unsure how to move forward.

Examples of the contribution types

We’ll show you how it works using Ben, an example employee.

Basic pay

£35,000 a year

Sales bonus

£1,000 a year

Overtime

£5,000 a year

Total pay

£41,000 a year

How the different contributions work

Types	Amount	How is it worked out	Minimum employer contribution	Minimum total contribution
Qualifying earnings	£34,760	£6,240 deducted from Ben’s salary before calculating the percentage you need to put in his pension	£1,042.80 a year (3% of £34,760)	£2,780.80 a year (8% of £34,760)
Basic pay	£35,000	You take the percentage that must go into Ben’s pension from his basic salary, which only includes contractual and statutory payments.	£1,400 a year (4% of £35,000)	£3,150 a year (9% of £35,000)
Pensionable pay (set two)	£36,000	For set two contributions, you take the percentage you must put into Ben’s pension from his pensionable pay. To use set two contributions levels, Ben’s pensionable pay must be more than 85% of the total amount he earns. Pensionable pay can include any other payment or benefit outlines as being pensionable in an employee’s contract of employment.	£1,080 a year (3% of £36,000)	£2,880 a year (8% of £36,000)
Total pay (set three)	£41,000	You take the percentage you must put into Ben’s pension from 100% of Ben’s salary, including any commission, overtime and bonuses.	£1,230 a year (3% of £41,000)	£2,870 a year (7% of £41,000)

How do I process the contributions?

You need to pay your contributions by a certain date each month. That date will depend on how you choose to pay.

If you pay by cheque, you’ll need to pay your employees’ contributions into your workplace pension scheme by the 19th of the month after the date on which you took the money from your scheme member’s salary. If you choose to pay by any other method, the contributions need to be in by the 22nd of the month.

Some providers, offer online management systems that can make it easier for you to calculate how much is due. They can also integrate the calculation with your payroll software to make processing the contributions less time-consuming.

How is the money invested?

Workplace pensions typically offer a choice of investment funds to reflect the life stages, priorities and personal choices of employees. These funds may be built up from different types of assets – including UK or international company shares, government bonds, property or money market instruments.

In practice, some employees won’t have the time – or the financial experience – to make choices between individual investments or manage ongoing changes to their investment portfolios. That’s why most providers also offer an expertly managed default fund, built to meet the needs of the majority of employees. Other investment funds may be available if your employees want to choose their own investments.

How should I plan to meet the cost of contributions?

The costs of running a workplace pension scheme go beyond just the contributions themselves. You need to think about expenses like your pension provider’s charges, payroll costs, and the cost of assessing your employees for eligibility and communicating with them about their pension scheme. You may also want to consider whether it’s worth paying for financial advice.

With all that in mind, you need to look carefully at your balance sheet or projections because it’s important to budget properly to make sure you can afford everything.

What do I need to communicate to my employees?

As part of your auto-enrolment duties, you’re required by law to write – by letter or email – to all eligible staff individually to explain how auto-enrolment into the workplace pension scheme will affect them. You also have to tell them how the scheme works.

Depending on your provider, you might need to do this before you let them know the details of employees who will be joining the scheme. This is important because it affects the date on which employees can choose to opt out.

Some providers, offer tools and templates to help you communicate with your employees about their workplace pension. This kind of support could be invaluable, making it both quicker and easier for you to communicate with your employees.

Got a question?

We answer some of the most frequently asked questions about auto-enrolment.

Can contribution levels vary between employees?

Yes. Under auto-enrolment legislation, you can make contributions at different rates for difference groups of employees. Remember, though, that auto-enrolment legislation doesn’t replace any other employment legislation, so you’ll need to make sure you comply with all your duties when you make this decision.

Can I make single contributions to a pension?

Yes. You’ll still need to make sure you make monthly minimum pension contributions, but you can make additional one-off contributions too. For instance, after an employee has received a bonus payment, you might need to make an additional pension contribution as part of your contractual agreement.

Employees can also make single contributions to their workplace pension.

When will I need to make contributions?

You need to work out your contributions each time you pay your staff. Some providers, can only accept monthly contributions – even if you pay your staff more frequently.

How does salary sacrifice work?

Salary sacrifice is where an employee agrees to give up part of their salary or bonus in exchange for a benefit paid by their employer. In this case, the benefit would be a pension contribution. It will involve a change in contract between the employer and employee. After sacrificing the agreed amount, you as the employer would make a payment of the equivalent amount into the employee’s pension pot.

As a result, they receive a reduced salary, meaning the National Insurance payments you and your employee pay will be lower. They will also not pay tax on the sacrificed portion of their salary, giving them immediate full tax relief.

Salary sacrifice may not be suitable for all employees. For example, if may affect the level of some future state benefits or affect an employee’s ability to borrow.

Salary sacrifice can’t reduce an employee’s taxable salary below national minimum wage. So, if you have set they pay at the national minimum wage, it won’t be possible to raise any pension contributions using salary sacrifice.