Employment Hero’s latest SME Index reveals an alarming trend in SME growth with year-on-year (YoY) employee growth almost halving from 11 per cent in April 2023 to just six per cent in April 2024. Alongside the fact that SME insolvencies are at an all-time high and that an estimated 5000 restaurants are predicted to go out of business in the next 12 months, the research paints a bleak picture for the small-business sector.
Compounding the problem is an unsustainable rate of wage growth, with YoY wages up by 7.8 per cent and a month-on-month (MoM) increase of 2.2 per cent in April 2024, more than double the 0.9 per cent growth seen in March 2024, a figure that highlights the ongoing inflationary pressures that has the potential to threaten the profitability and sustainability of small businesses.
The research shows the median hourly rate is now at $39.21, up by 2.2 per cent from $38.34, emphasising the cost pressures businesses face in retaining talent. The disparity between wage growth and slowing employee growth raises concerns about the long-term sustainability of current wage levels.
From an industry performance perspective, the research reveals a disparity in the challenges different sectors face: the retail, hospitality and tourism sectors experienced modest growth of 5.4 per cent YoY; construction and trade services recorded a similar rate of growth of 5.2 per cent YoY; whereas the healthcare and community services sector demonstrated their resilience through a 9.1 per cent YoY increase.
“These trends signal a very real threat to the future of the SME sector,” Ben Thompson, CEO and Co-Founder of Employment Hero, said. “If the growth rate continues to decline while wages and operational costs rise, we could see a significant number of SMEs struggle to survive. 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.
“Our latest SME Index reveals the sector is at a crossroads,” Thompson added. “While growth exists month on month, the overall trend is downwards. 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.
“While last week’s Federal Budget provided some much-needed support for SMEs, it’s simply not enough to prevent what very well may be the most serious threat to small-business creation in some time,” he continued. “Our policymakers and business leaders need to navigate these complexities and implement better support initiatives to sustain the sector’s vitality and ensure balanced economic growth. The coming months will be critical in determining whether certain SMEs can adapt to these challenges or face closure altogether.”
And Eddie Kowalski, Senior Insights Manager at Employment Hero, said that the data indicates 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,” Kowalski said. “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. 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.”
