Man v machine: is mechanisation the solution to reducing labour costs?

25 February 2019

5 April 2019 will see the next increase in salary costs for all businesses, including farmers, with the rates for work-based pension contributions, National Living Wage (NLW) and National Minimum Wage (NMW) all increasing. From 5 April, The NLW for over 25’s increases from £7.83 to £8.21, while the NMW increases across each age category by up to 4.3%. The minimum contribution to a work-based pension scheme will become 8%, of an employee’s gross salary, of which the employer must contribute a minimum of 3%. This means that the employee would, under normal circumstances, be contributing 5%.

All of these increases will impact on the profitability of the farming business, unless a corresponding increase in productivity outweighs the salary costs. With the dreaded ’B’ word looming and the possibility of a ‘no deal Brexit’ growing, it is possible that farmers will need to recruit more UK based employees, to either supplement or replace overseas, migrant workers. If that is the case do farmers need to raise wages and salaries further than the minimum to entice UK based employees to accept the work? Suddenly the ‘small’ percentage increases all take together become a little bit more meaningful.

The mechanisation of certain processes may be an option for the farmer in order to either reduce labour costs or improve productivity in order to bolster profits, but mechanisation is not something that can necessarily be achieved overnight.  A great deal of forward planning will need to be undertaken in this area to plan and anticipate the level of productivity saving will be achievable by mechanising certain aspects of the process, as well as ensuring the lead time for capital expenditure is managed and budgeted for.

The human aspect of farming will never go away and mechanisation will always be an enabler for the farmer to achieve targets, but the degree to which mechanisation will be adopted will be a trade-off, between cost and efficiency in productivity and cost savings.

If you would like to discuss payroll services and pension support or capital allowances then please either contact me or your local UHY adviser.