Budget Reaction: Staff Cost Increases between 8% & 18.2% a disaster for rural businesses

Budget Reaction: The Impact of Staff Cost Increases on Small Rural Businesses

With the new budget announcements, rural small business owners, particularly in labour-intensive sectors like equestrian yards, face significant changes in staffing costs. From wage increases to higher National Insurance (NI) contributions, these changes could reshape employment practices, profitability, and service costs in the coming years. Here’s a closer look at how these updates impact rural small business owners, with practical examples to help illustrate the effects.

1. Minimum Wage Increases: 18-20 Year-Olds and 21+ Workers
The budget has introduced a considerable minimum wage increase for both younger workers (18-20) and those over 21, effective from April 2025. This increase aims to align with a “living wage” philosophy but introduces substantial cost hikes for small business owners reliant on minimum-wage labour.

18-20 Year-Olds: The minimum wage for this age group will see a significant rise, reaching £10 per hour.
21+ Workers: The wage increase for those over 21 is set at £12.21 per hour, a 6.7% rise from previous rates.
For small rural businesses like equestrian yards that frequently employ young workers on flexible or part-time schedules, these increases are not just nominal but represent a notable jump in payroll expenses.

Example:

For an equestrian yard employing four part-time 18-20-year-olds for 20 hours weekly, moving from an £8.60/hour rate to £10 would mean an additional £5,824 annually.
For four full-time employees aged over 21, the jump from £11.44 to £12.21 would add approximately £11,648 per year to wage expenses​

2. Increased Employer National Insurance Contributions
On top of the wage hikes, employer National Insurance Contributions (NICs) are set to increase from 13.8% to 15%. This rise adds another layer of expense for rural business owners already grappling with inflationary pressures on operational costs, such as feed, utilities, and maintenance in sectors like equestrian services.

Impact of NIC Increase with Examples:

For a small yard employing four part-time workers aged 18-20, with an annual wage bill of around £41,600 after the wage increase, the new NIC cost would be £6,240 annually, factoring in the £6,000 NI allowance.
For four full-time employees aged over 21, with a post-increase annual wage of £101,779, the NIC costs rise significantly, reaching £9,266 after the allowance​

​

.
3. Challenges for Small Rural Businesses Like Equestrian Yards
Equestrian yards and similar rural businesses, which rely on skilled and affordable labour to manage animals, grounds, and facilities, may face added pressure due to these cost increases. As costs rise:

Profit Margins May Shrink: Equestrian yards typically operate with high fixed costs, such as land and feed expenses. The added wage and NI costs could reduce net profits, especially for smaller yards with limited pricing flexibility.

Service Costs Could Increase: To cope, some rural businesses may have to raise prices for services like boarding, lessons, or events. This might make their offerings less accessible to budget-conscious clients.

Potential for Reduced Hiring or Hours: Owners might consider reducing part-time hours or limiting new hires to offset costs, impacting the availability of labour and the quality of service.

Example Impact on Total Annual Costs:
For an equestrian yard employing a mixed-age workforce of both part-time 18-20 year-olds and full-time 21+ workers, the combined annual increase due to wages and NI changes could exceed £18,000. This added cost represents around a 25% increase in staffing costs, which may force budget adjustments across other areas or impact staffing levels directly.

4. Long-Term Considerations and Potential Adjustments
In the face of these changes, rural business owners in the equestrian sector and similar fields may consider options to manage costs:

Re-evaluate Staffing Models: Employing seasonal workers, contractors, or freelancers could provide flexibility, though it might impact service consistency.

Focus on Efficiency: Automation or process improvements may reduce the need for extensive labour, albeit with an upfront investment.

Raise Prices Selectively: Pricing adjustments on high-demand services could help absorb costs without significant impact on customer retention.

In conclusion

An assumption of the cost difference for 4 full time 18-20 year old employees - For four full-time workers aged 18-20, the total cost increase due to the wage and National Insurance changes is approximately £14,254 annually. This represents an 18.2% increase in staffing costs

An assumption of the cost difference for 4 full time 21+ yr old employees - For four full-time workers aged 21 and over, the total cost increase due to the wage and National Insurance changes is approximately £8,510 annually. This represents an 8.1% increase in staffing costs