Small and medium-sized businesses (SMEs) will likely face severe employment issues after the recent increase in the National Minimum Wage, warns the latest Employment Hero SME Index data. The detailed analysis of over 140,000 SMEs and 1.4 million workers has cautioned that the employment outlook for Australians could darken after the wage increase, which went into effect on July 1, 2023.

The comprehensive Employment Hero SME Index revealed a stark 6.4% month-on-month reduction in median hours worked in April. Every business size, state, territory, and industry – excluding Manufacturing, Transport, and Logistics – and all age groups, except those under 18, felt the sting of this drop.

Worrisome trends continue in Construction, Trade Services, Healthcare, Community Services, Retail, Hospitality, and Tourism. These sectors saw a decline in median hours worked on a year-to-year basis and an unusual rise of 7.1% in median hourly wages, suggesting workers are being paid more for fewer hours.

This paradox, however, indicates more than meets the eye. The May SME Index shows that private sector wages have surpassed inflation, directly conflicting with the Fair Work Commission’s wage rise decision. This disagreement raises the alarming possibility that the imminent wage increases could intensify the negative employment trends in the latter part of 2023.

Moreover, the falling hours worked suggest a decrease in employees’ take-home pay, which correlates with the slump in discretionary spending observed in the Retail, Hospitality, and Tourism sectors, reinforcing the suspicion that Australia is in a consumer recession. In May 2023, Australian SME employees earned a median hourly wage of $35.87.

Particularly distressing figures emerge from the Retail, Hospitality, and Tourism sectors. These sectors experienced a decline in average employment growth (-0.1%), median hourly wages (-1.3%), and median hours worked (-4.7%) on a month-to-month basis. These trends signal a crisis more profound than just a seasonal downturn.

The Healthcare and Community Services sector is also showing worrying signs. Despite positive growth in SMEs’ average employment, the sector’s median hourly wages and hours worked have dropped month-on-month and year-on-year.

Ben Thompson, the CEO and Co-founder of Employment Hero, voiced his concerns about the economic challenges businesses face, with increasing inflation pressures and the potential for wage rises to trigger a wage-price spiral or even unemployment. He highlighted that their data demonstrates that wages are outpacing inflation and expressed deep concern that the Fair Work Commission’s wage increase decision might amplify the current employment growth decline reported in the SME Index.

Thompson affirmed Employment Hero’s commitment to the prosperity of both employers and employees. However, he cautioned that Australian workers might face significant challenges in securing sufficient work hours in the second half of the year, which heavily relies on the stability and growth of the SME sector.

The SME Index data is a harsh reminder of the delicate balance between wages, hours worked, and overall employment trends. As Australian businesses brace for the effects of the wage increase, the broader economic consequences remain to be seen.

Written by: Anne Keam

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