On 7 October 2025, the Irish Government announced the details of Budget 2026, bringing a range of updates that will impact small to medium enterprises (SMEs) across Ireland. While the effects may vary by industry, many businesses can expect increased paperwork, higher payroll costs, and additional financial strain.
The current financial landscape for SMEs
With ongoing challenges such as inflation, tariffs, and existing legislation like statutory sick pay, many businesses are already struggling with rising costs. With the introduction of pension auto-enrolment on 1 January 2026 (please see the latest updates on pension auto-enrolment here), and an increase in the national minimum wage now happening on the same day, payroll costs will increase overnight.
Increase to the national minimum wage
As part of Budget 2026, it has been announced that the national minimum wage will increase by €0.65 on 1 January 2026, bringing it from €13.50 to €14.15 per hour.
This will require employers to update their HR documentation and employment contracts to reflect the new minimum rates of pay, and to ensure that payroll is adjusted in line with the increase.
Industry-specific impacts: VAT reduction for hospitality
The food, catering, and hairdressing sectors will benefit from a reduced VAT rate of 9% from July 2026. These industries have been particularly hard-hit by rising costs and economic uncertainty in recent years, so this is likely to bring financial relief to many employers.
However, while reduced VAT rates are a welcome change for these sectors, businesses may still be struggling with financial and administrative pressures over the coming months.
Given the number of young and temporary workers in the food sector, restaurants and cafes are more likely than most to be impacted by both the pension auto-enrolment contributions and the increase to minimum wage. Many employers will not have offered a pension scheme until now and will feel the financial effects of these changes.
Recruitment and retention challenges
In addition to direct costs, it’s also important to consider the impact of personal taxation on business operations. With no movement on personal tax brackets this year, in the midst of a housing and cost-of-living crisis, employers may struggle with recruitment and retention throughout the coming year.
Conclusion
In summary, Budget 2026 presents a range of updates and challenges for Irish SMEs. As businesses navigate increased payroll costs and administrative burdens, it’s essential to stay informed and proactive when adapting to these upcoming legal changes.
