Small businesses are finding it harder to build employee numbers than big business, Employment Hero data shows

Australia’s smallest businesses struggled to maintain their employee numbers in July even as larger firms built their headcount, according to new data outlining how the labour shortage and cost pressures are impacting employers nationwide.

Employment Hero’s July SME Index, released Wednesday, tracks the average number of employees across more than 120,000 Australian businesses against the average recorded in pre-pandemic January 2019.

The Employment Hero data shows the average number of employees in Australian SMEs was 12.6 points higher in July 2022 than in the January 2019, reflecting the strength of Australia’s economy when pandemic lockdowns came to an end.

Those findings also echo the latest figures from the Australian Bureau of Statistics, which show rising workforce participation and the lowest unemployment rate since 1974.

But that post-pandemic jobs surge might be cresting, according to the new report.

Between June and July this year, the average headcount for small businesses, defined as those with between 1 and 19 employees, fell 0.5%.

Comparatively, average headcount for medium-sized businesses with 20 and 199 employees rose a marginal 0.1%. For bigger employers with in excess of 200 employees, the figure grew 0.5%.

The data suggests small businesses are having a harder time finding or retaining staff than their larger competitors.

This reflects a widespread sentiment among small business groups: a labour force shortage, largely due to Australia’s closed-border policy through much of the pandemic, is making it harder for businesses to find the right staff.

At the same time, Employment Hero’s data shows smaller employers are raising wages slower than businesses on the big end of town.

Wage growth has increased an average of 4% for workers at small businesses since July 2021, the report said. However, medium-sized employers paid their workers 6.3% more, with the largest businesses passing on 6.7% pay rises.

With the Consumer Price Index rising 6.1% over the year to July 2022, the Employment Hero data suggests small business employees are actually losing spending power despite nominal wage increases.

Ben Thompson, founder and CEO of Employment Hero, drew a link between employee growth among small businesses and their ability to match wages offered by larger enterprises.

SMEs are “more likely to pay for top performers to compete with the skills shortage”, he said.

But hiking wages isn’t always easy, the data shows, suggesting many smaller businesses will not pass on the wage hikes needed to build staff numbers.

While lifting pay may be essential to attract and retain talent in today’s tight labour market, Employment Hero’s June SME Index found 24.3% of employers said they would need to review their pricing strategies to keep up with the latest minimum wage increases flagged by the Fair Work Commission — without even considering wage hikes for those already earning more than the award rates.

And 10.9% of respondents said they would need to let staff go to cope with the minimum wage hikes, potentially lowering employee headcount at small businesses even further.

Beyond focusing on wages, Thompson urged small businesses to assess all their options through tomorrow’s “tough economic conditions”.

“Are you exploring all options of employment, including remote hiring?” he said.

“Can new technology or processes help drive better efficiencies and returns for your business?

“Through upheaval, businesses who stay agile and continue to optimise will be best placed to make it through.”