Editor’s note: This article was originally published on Lawyers Weekly’s sister brand, Accounts Daily.

Employment Hero’s April SME Index Update indicates that the employee growth rate for SMEs has fallen from 11 per cent in April last year to 6 per cent in April 2024.

The data for the SME index is based on a dataset of over 1.5 million employees and 150,000 small- to medium-sized enterprises.

This slowdown is particularly evident in Victoria, where SMEs experienced the weakest growth at 5.6 per cent year on year, underscoring ongoing business difficulties in the state.

In contrast, South Australia and Western Australia lead with year-on-year growth rates of 8.4 per cent and 8.2 per cent, respectively, showcasing regional disparities in business climates.

The index also revealed certain industries face more significant challenges with the retail, hospitality and tourism sectors showing modest growth, increasing by 5.4 per cent year on year, with a marginal 0.5 per cent month-on-month rise.

Construction and trade services showed similar rates of employee growth, with 5.2 per cent year-on-year growth and a 0.4 per cent month-on-month increase.

In contrast, employee growth in the healthcare and community services sector was higher, with a 9.1 per cent year-on-year increase and a 0.6 per cent month-on-month increase.

VIEW ALL

These trends highlight sector-specific challenges and opportunities, particularly the resilience of the healthcare sector amid broader economic uncertainties, the HR and payroll software firm said.

The index also revealed that wage growth is accelerating, with year-on-year wages up by 7.8 per cent and a sharp month-on-month increase of 2.2 per cent in April 2024, more than doubling the 0.9 per cent growth seen in March 2024.

“This surge in wages reflects ongoing inflationary pressures that could impact the profitability and sustainability of SMEs,” Employment Hero said.

The median hourly rate now stands at $39.21, up by 2.2 per cent from $38.34, further emphasising the cost pressures businesses face in retaining talent.

Employment Hero chief executive Ben Thompson said these trends signal a very real threat to the future of the SME sector.

“If the growth rate continues to decline while wages and operational costs rise, we could see a significant number of SMEs struggle to survive,” Thompson said.

“This would have profound implications not only for the businesses themselves but for the broader economy, as SMEs are vital for job creation and innovation. It’s imperative that we address these issues head-on to ensure the sector remains robust and capable of driving economic growth.”

Thompson said that while growth still exists month on month, the overall trend is downward based on the SME index data.

“I fear things may worsen before they improve. Accelerating wage growth and fluctuating work hours point to underlying economic tensions that need to be addressed,” Thompson said.

The index indicated that while median hours worked saw a monthly increase of 3.9 per cent, they are still down 1.2 per cent year on year.

Eddie Kowalski, senior insights manager at Employment Hero, said that the data points to a very challenging scenario for SMEs.

“Wage growth, which has surged by 7.8 per cent year on year and 2.2 per cent month on month, is a blessing and a curse. While higher wages can attract and retain talent, they also increase operational costs, which can compromise the viability of small businesses in the long run,” Kowalski said.

“This is why it’s important for decision-makers to look at ways of supporting the SME sector, which is facing severe and ongoing challenges.”