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Contractor Pensions - our advice

About the Pensions Act

The government has taken steps to encourage people in work to make significant provisions for their retirement, as most people have around 20 years of retirement to look forward to. These are some key points:

  • We offer a full suite of support and services, meaning that we can cater for all your contractors, regardless of industry or circumstance.
  • Workers can opt out of the pension scheme within one month of being automatically enrolled. If this happens, they'll be entitled to a refund of their contributions and will be treated as if they'd never joined the scheme.
  • Employers can postpone the duty to automatically enrol new workers by operating a waiting period of up to three months.
  • About every three years, employers will need to automatically re-enrol any jobholder who has opted out or left the pension scheme.
  • Penalties for non-compliance are significant - with fixed penalties of £400 and escalating penalties ranging from £50 to £10,000 per day, depending on the size of the employer's PAYE scheme for serious or persistent breaches.

When does it come into force and what are the contributions?

Auto-enrolment came into force on 1 October 2012 and applied to all UK-based employers. There were various staging dates, according to how many qualifying staff were employed by any given organisation. See the staging table below:

PAYE Scheme size

120,000 or more















Implementation date

1 October 2012

1 November 2012

1 January 2013

1 February 2013

1 March 2013

1 April 2013

1 May 2013

1 June 2013

1 July 2013

1 August 2013

1 September 2013

1 October 2013

1 November 2013

1 January 2013

1 February 2013

The minimum contribution rate is being phased in as follows

The employer pays:

The employee pays:

The Government adds tax relief of:

Total contribution:

1.0% of the qualifying earnings until 6 April 2018

0.8% of the qualifying earnings until 6 April 2018

0.2% of the qualifying earnings until 6 April 2018

2.0% of the qualifying earnings until 6 April 2018

rising to 2.0% until 6 April 2019

rising to 2.4% until 6 April 2019

rising to 0.6% until 6 April 2019

rising to 5.0% until 6 April 2019

then rising to 3.0%

then rising to 4.0%

then rising to 1.0%

then rising to 8.0%

Who qualifies for auto enrolment?

The legislation includes agency workers in its definition of 'worker', including those on agency payroll, meaning that the agency will have to contribute for contractors working on their payroll. Umbrella employees also fall within the scope. Limited company contractors do not fall within the scope. Three categories of workers have been identified:

1. Eligible jobholders

People who'll need to be automatically enrolled into a qualifying scheme, with the ability to opt out. They must be at least 22 years old and below state pension age, work in the UK, and earn more than the current threshold of £10,000 per year.

2. Non-eligible jobholders

People who aren't eligible for auto enrolment but can opt in to a qualifying pension scheme if they choose. They must work in the UK, be aged between 16 and 74 and have earnings between £5,824 and £10,000 per year. Alternatively, they are aged between 16 and 21, or aged between the state pension age and 74 and earn over the current threshold of £10,000 per year.

3. Entitled workers

People who are aged between 16 and 74, earn less than the lower earnings amount of £5824 per year and work, or ordinarily work in the UK. Entitled workers have the right to ask to join a workplace pension but the employer is not obliged to make contributions.

What's required from the employer/agency?

  1. Identify who's responsible for auto-enrolling agency workers
  2. Establish admin and payroll systems to deal with automatic and re-enrolment
  3. Review your pension arrangement to make sure it's a qualifying scheme
  4. Keep your workers informed, including non-eligible jobholders and entitled workers. In particular, you need to inform eligible jobholders about the right to opt out, the start and end date of opt-out period, as well as information about the pension scheme and contribution rates.
  5. Start contributing to the workers' pensions
  6. Register with the Pensions Regulator

The legislation clearly sets out the information and timeframes that employers and agencies will be required to give to their workers. Penalties can be applied for non-compliance.


What are the choices?

  • Manage your own pension scheme in-house - meaning you'll have to set up and manage the auto-enrolment process.
  • Move worker from agency payroll to an Umbrella - this puts the burden of pension admin onto the Umbrella.

Why PayStream?

We were advised by leading legal firm Eversheds on implementing the new legislation. We chose the enrolment provider, NEST and we meet our obligations set by TPR and DWP.

  • "A professional agency that requires minimum contact from my side and this is what I value the most."

    M Kwiatkwki, Multi-Trader

  • "I have been given an excellent and exemplary service. Nothing ever seems too much trouble."

    D. Mackinlay, Project Manager

  • "You're very reactive to any of our contractor's queries or problems."

    J. Roome, Accept Engineering

  • "PayStream have been an invaluable partner for Experis over  recent years. They have helped to guide and advise our company through the many complicated, business critical legislative changes taking place. Thanks to the training, briefing packs and ongoing guidance from the PayStream teams, our teams have been well prepared to carry out the required business."

    Steph O'Connor, Head of CORE for Experis UK

For efficient, compliant support, choose PayStream.

Call agency support on 0161 971 8979 or email

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