Budget 2026: What It Means for Employers and SMEs
Budget 2026 aims to balance support for households with maintaining a stable economy, but for employers especially small and medium-sized businesses this brings a mix of new costs and limited reliefs.
While there are some positive measures like enhanced tax incentives and sectoral supports, many SMEs will feel extra pressure from wage and pension changes taking effect in 2026.
Key Highlights for Employers
1. Increase in the National Minimum Wage
From 1 January 2026, the national minimum wage will rise by €0.65 to €14.15 per hour.
This increase will affect payroll costs, particularly for businesses with large numbers of entry level staff.
2. Auto-Enrolment Pension Scheme
There was also mention of the new auto-enrolment retirement savings scheme, “My Future Fund”, which will begin on 1st January 20262026.
Employers will be required to make pension contributions for eligible employees, adding another cost layer to total remuneration.
3. No Major PRSI Rate Changes
There were no new increases to employer PRSI in this budget, but with rising wages and pension contributions, overall employment costs will still climb.
4. Supports for Innovation and Growth
Positive measures include:
· An increase in the R&D (Research and Development) tax credit to 35%, allowing companies to claim back costs.
· Extension of the KEEP scheme (Key Employee Engagement Programme) which helps small and medium-sized businesses to attract and retain key employees by allowing them to receive share options in a tax-efficient way, until 2028.
· Continued funding for Local Enterprise Offices (LEOs) and digital and green transition supports for SMEs which provide grants, training, and mentoring to help small businesses grow, adopting digital tools (like e-commerce and automation) and making their operations more sustainable.
The aim of these measures is to help small businesses invest, innovate, and retain key staff.
5. Sector-Specific VAT Relief
From 1 July 2026, the VAT rate on food, catering, and hairdressing services will be cut from 13.5% to 9%.
6. SARP & Foreign Earnings Deduction
The Special Assignee Relief Programme (SARP) has been extended to 31 December 2030; the minimum salary threshold is increased from €100,000 to €125,000.
The Foreign Earnings Deduction (FED) is also extended, and the cap for qualifying income is raised from €35,000 to €50,000.
Recommendations for Employers
Run a cost impact model: Calculate how the wage increase, pension costs (auto-enrolment), and social insurance will affect different organisational structures (e.g. full-time, part-time, variable hours).
Review pay scales and job grades: Ensure upward compression is managed, especially where new minimums push some roles close to supervisory pay.
Upgrade payroll / HR systems: Confirm your providers or in-house systems can handle auto-enrolment, contributions, deductions, etc.
Communicate proactively with employees: Be transparent about any changes, explaining the rationale, and manage expectations.
Explore incentive regimes: If your business undertakes R&D or issues share based compensation, examine how to leverage the enhanced R&D credit, KEEP, etc.
Audit capital & energy investment plans: Prioritise equipment or upgrades eligible under the accelerated allowances.
Engage with state supports: Make full use of LEOs, digital / climate transition grants, and enterprise advisory services.
Monitor cashflow closely: The additional costs may require adjustment to margins, pricing, or financing strategies.
Overall, Budget 2026 represents a period of adjustment for employers. While the government has introduced positive measures to drive innovation and sustainability, the combined impact of rising wages and new pension obligations will test the resilience of many SMEs.
Careful planning, clear communication, and smart use of available supports will be key for employers aiming to maintain stability while preparing for the future.
As always, the MSS HR team is here to guide you through these changes and help ensure your business is prepared for what lies ahead.
Phone: 01 8870690 Email: info@mssthehrpeople.ie
