SME wages hit five-year high

compensation scheme, pay issues

The latest Xero Small Business Index report reveals that Australia’s small businesses saw another month of improved performance, with the Index rising four points in April 2022 to 122 points. The rise is primarily down to wages growth, which reached 4.1 per cent year-on-year (y/y) in April, a high not seen since the Index began in 2017.

The report signs of emerging risks for the small-business sector, however with a sharp reduction in sales growth in April to 5.8 per cent y/y, down from 12.7 per cent y/y in March. This is largely attributed to the rising cost of living which is reducing households’ capacity to support their local small businesses.

Construction recorded the largest wage rise at 5.1 per cent y/y, followed by manufacturing (4.6 per cent y/y) and hospitality (4.5 per cent y/y).

“This month, wages have jumped significantly among small businesses – and at a rate higher than we have seen since the Index began,” Joseph Lyons, Managing Director Australia and Asia at Xero, said. “While this is a positive sign in the health of the sector, we should be cognisant that small businesses are facing rising costs across the board as inflation continues to climb. It’s important for the incoming government and broader industry to consider how they can alleviate some of this growing financial burden.”

Sales slowed in April to 5.8 per cent y/y after 13 months of strong double-digit growth. Arts and recreation (+2.4 per cent y/y), education and training (+3.4 per cent y/y), information media and telecommunications (+4.3 per cent y/y) industries all saw growth slower than the national average.

“With the broad-based increase in the cost of living, consumers are shifting their spending to more pressing bills that can not be avoided,” Louise Southall, Economist at Xero, said. “This can be seen in the sales results for April, particularly in sectors such as arts and recreation and retail. Industries that are not directly affected by discretionary consumer spending, such as professional services, saw a larger sales increase.”

Despite the wage growth, job growth remained weak in April, falling 1.1 per cent y/y after a 1.3 per cent y/y decline in March. With vacancy rates remaining high, small businesses are battling with the inability to find new staff.

“The decline in jobs in April is likely not an immediate reaction to weaker sales but rather is still reflecting ongoing challenges in finding staff,” Southall said. “However, should sales continue to be soft, we could see this start to affect the job market in a few months’ time.”