UK pension rules for international employees: what startups must assess and do

Understanding UK Pension Rules for International Employees

Hiring your first international team member is a significant milestone for any UK startup, signalling growth and access to a global talent pool. However, it also introduces administrative complexity that founders, often managing finances on spreadsheets and Xero, may not be prepared for. The most common challenge is navigating pension auto-enrolment for international employees working in the UK. Many founders assume a foreign national with a foreign employment contract is exempt, but the reality is often the opposite. Misunderstanding your obligations can lead to compliance headaches and penalties from The Pensions Regulator.

This guide provides a clear framework for UK-based SaaS, Biotech, and other early-stage companies. We will cover how to determine your duties, configure payroll correctly for cross-border scenarios, and stay compliant without the stress.

The Foundational Principle: It’s About Where They Work

The single most important rule for international hires and UK pensions is this: eligibility is determined by where the work is performed, not by the employee’s nationality, their contract’s jurisdiction, or where they are paid. If you hire a US, EU, or any other overseas national to work for you inside the UK, they fall under UK auto-enrolment rules.

UK auto-enrolment is the system requiring employers to automatically enrol eligible staff into a workplace pension scheme to ensure workers are saving for retirement. The foundational principle is simple. For your international team members physically working in Great Britain, you must assess them for eligibility just like any UK-based employee. It’s about where they physically perform the work. This primacy of work location is the core of your compliance obligations and the starting point for every international hiring decision.

A 3-Question Test for Workplace Pension Eligibility for Foreign Employees

To navigate your cross-border pension obligations, apply this simple three-question test for every non-UK worker you hire to work in the UK. This process removes ambiguity and clarifies your immediate responsibilities as an employer.

1. Are they an ‘eligible jobholder’ based on UK criteria?

Before considering any international complexities, you must first assess the employee against standard UK criteria. If they do not meet these thresholds, you have no immediate duty to enrol them, although they may still have a right to opt in. An eligible jobholder is an employee who meets two specific conditions:

• Age: They are aged between 22 and the State Pension age.
• Earnings: They have earnings over £10,000 per year (GBP). You should always verify the exact threshold for the current tax year with The Pensions Regulator.

For example, if a part-time developer for your E-commerce startup earns £9,000 a year, they are not an ‘eligible jobholder’. In this case, you do not have to auto-enrol them, regardless of their nationality. The assessment starts and ends with these UK-based rules. Only if they meet both criteria do you proceed to the next question.

2. Does a specific, narrow exemption apply?

This is a common point of confusion. Many founders assume that if their new US hire is already contributing to a 401(k) back home, they are exempt from UK auto-enrolment. This is almost always incorrect. The exemptions are extremely narrow and do not cover standard overseas personal or company pension plans.

An exemption may apply if the employee is part of a Qualifying Overseas Pension Scheme (QOPS), but these are specific arrangements designed to meet strict HMRC requirements, typically for seconded employees from a parent company abroad. The reality for most startups is more pragmatic: the pension plans your international hires already have will not qualify. According to HMRC requirements, common pension plans that are generally not QOPS for this purpose include US 401(k)s, US IRAs, Australian Superannuation funds, and Canadian RRSPs. You should therefore assume that your new hire from the US, Canada, Australia, or the EU will not be exempt based on their existing pension.

3. If they are eligible, what are my immediate next steps?

Once you determine an employee is an eligible jobholder and no exemption applies, your duties begin immediately. You must enrol them into a qualifying UK workplace pension scheme. The timeline is strict, as enrolment must occur within six weeks of the employee's start date.

However, there is a practical tool to help manage this process: postponement. You can use postponement to delay the assessment and enrolment date for up to three months from the employee’s start date. This is particularly useful for aligning new hires with your monthly payroll run in Xero or for giving you time to get your pension scheme set up if this is your first employee.

Crucially, postponement is a delay, not an exemption. You must issue a formal postponement notice to the employee within six weeks of their start date, informing them of the delay and their right to opt in to the pension scheme during the postponement period. At the end of the period, you must assess them again and enrol them if they are still eligible. It is a useful administrative tool, not a way to avoid your legal duties.

Getting Payroll Right: The Practical Hurdles

Correctly determining eligibility is only the first step. The next challenge for SaaS or Deeptech startups is configuring payroll to manage contributions accurately, especially when dealing with foreign currencies or complex remuneration packages.

Minimum Contribution Levels

You must meet the minimum contribution levels set by UK law. The minimum total contribution is 8% of an employee's 'qualifying earnings', with the employer paying a minimum of 3%. 'Qualifying earnings' is a specific band of earnings between a lower and upper limit, which is updated annually. Your payroll software, like Xero, can typically automate this calculation once set up correctly. For guidance on setup, see our Xero integration guide.

Handling Salaries in a Foreign Currency

Paying an employee in a foreign currency like USD or EUR requires an extra step for pension auto-enrolment for international employees in the UK. To assess the employee against the £10,000 eligibility threshold and calculate contributions, you need a consistent conversion method. The recommended approach is to use "HMRC's official monthly exchange rates". Using this source provides a clear, defensible basis for your calculations and ensures you remain compliant. You should document this policy internally.

Managing Split Payroll Arrangements

Split payrolls, where an employee works in the UK and another country, also require careful handling. Consider a senior biotech researcher who works three days per week (60% of their time) in your London lab and two days remotely from Germany. Their total salary is £120,000. For pension assessment, you only consider the portion of earnings attributable to their UK work. In this case, that would be 60% of their salary, or £72,000. This is the figure you must assess against the auto-enrolment earnings threshold. Your payroll process must be configured to distinguish and assess only the UK portion of earnings.

Staying Compliant Without the Panic

Maintaining pension compliance for international employees involves a few key administrative tasks and understanding how The Pensions Regulator (TPR) operates. The goal is to build a simple, repeatable process, not to live in fear of fines. Compliance is about process, not panic.

Your Declaration of Compliance

Your most important initial filing is the Declaration of Compliance. This is a mandatory online declaration made to TPR confirming you have fulfilled your duties. It must be filed within five months of your 'duties start date', which is the day your first employee began working for you. Missing this deadline is a common and avoidable misstep for new employers.

Ongoing Responsibilities

Beyond the initial filing, your duties continue. Primarily, re-enrolment must be completed every three years for staff who opted out. This means you must put any eligible staff who chose to leave the scheme back into it every three years. They will then have the option to opt out again. You also have an ongoing duty to assess new hires and any employees whose age or earnings change, potentially making them eligible for the first time.

Understanding TPR Enforcement

In practice, TPR's goal is to achieve compliance, not to issue penalties immediately. Typically, if you make a mistake, you will receive notices and warnings first, providing an opportunity to rectify the issue. However, ignoring these can be costly. Failure to comply with a statutory notice can result in a "TPR Fixed Penalty Notice for non-compliance with a statutory notice is £400." If non-compliance continues, penalties can escalate, as "TPR Escalating Penalty Notices carry a daily fine starting from £50 for small employers". Establishing a clear process from day one is the best way to avoid this scenario.

Practical Takeaways for Founders

Managing UK workplace pension eligibility for foreign employees does not need to be a major burden. By focusing on the core principles and establishing a clear process from day one, you can meet your obligations effectively. For any founder in a Professional Services firm or SaaS startup hiring international talent, here are the priority actions:

1. Assess Every Hire Systematically: On their first day, run every new employee, regardless of nationality, through the 3-question test. Where do they work? Do they meet the UK age and earnings criteria? Does a genuine, narrow exemption apply?
2. Default to Enrolment: Your default assumption should be that any overseas hire working physically in the UK must be enrolled. The exemptions are rare, and personal pension plans like a 401(k) or an RRSP do not count.
3. Use Postponement Strategically: Use the three-month postponement period to align new starters with your payroll cycle and complete the necessary administration, but always remember to send the official postponement notice to the employee.
4. Document Your Process: Keep a simple record of your assessment for each employee. Note the dates you checked eligibility, sent communications, and completed enrolment. This creates an essential audit trail if TPR ever has questions.
5. Set Critical Reminders: The two most important deadlines are your Declaration of Compliance (within five months of your duties start date) and your triennial re-enrolment date. Set these in your calendar now to avoid future penalties.

For a deeper implementation walkthrough, including guidance on provider choice and setup, see our NEST vs Smart Pension comparison for provider selection and the Pension Compliance hub for further reading.

Frequently Asked Questions

Q: Does a US employee working in the UK need a UK pension if they have a 401(k)?

A: Yes, almost certainly. A US 401(k) is not a qualifying overseas pension scheme that would exempt them from UK auto-enrolment. If they meet the UK age and earnings criteria and physically work in the UK, you must enrol them into a UK workplace pension scheme regardless of their existing US pension.

Q: How do I calculate pension contributions for an employee paid in Euros?

A: To assess eligibility and calculate contributions, you must convert their Euro earnings into GBP. The best practice is to use a consistent, verifiable method, such as HMRC's official monthly exchange rates. This ensures your calculations are fair and defensible. Your process should be documented as part of your payroll policy.

Q: What is the 'duties start date' and why is it important for pension compliance?

A: Your 'duties start date' is the day your first employee begins working for you. This date is critical because it triggers several key deadlines. Most importantly, you must submit your Declaration of Compliance to The Pensions Regulator within five months of this date to confirm you have met your auto-enrolment duties.

Q: Can I wait to set up a pension scheme until an international employee asks for one?

A: No. Auto-enrolment is a legal duty placed on the employer. You must proactively assess all employees, including overseas staff working in the UK, from their first day of employment. Waiting until an employee requests a pension will put you in breach of your duties and at risk of penalties.