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Underemployment hits SMEs as wages rise

The latest Employment Hero SME Index, which uses an accumulative dataset of over 140,000 small and medium-sized businesses (SMEs) and 1.4 million employees, shows the monthly median hours worked by employees in June has decreased by a significant -8.6 percent month-on-month (MoM) while the monthly median hourly rate increased by 2.3 per cent in July, signaling SME owners are fighting to balance overheads with business growth and profitability.

Median monthly hours worked by employees dropped MoM across all states and territories, business sizes, age groups, and critical industries, except Science, Information and Communication Technology, which stagnated. This drop is consistent with the RBA’s Statement on Monetary Policy Report, which forecasts a continued decline in average hours worked due to the expected labour market downturn.

Median monthly hours worked was 135.7 in June, with NSW working the most (143.3) and Tasmania working the least hours (124.1). WA experienced the smallest decline in hours worked MoM (-7.2 per cent), while Tasmania saw the most significant decrease (-9.8 per cent). Across industries, the most median hours worked was in the Construction and Trade services (166.1), and the least was in Healthcare and Community Services, which also experienced the greatest drop MoM (-8.7 per cent).

In the same breath, July’s median monthly hourly rate saw its greatest jump in three months, sitting at $36.87. This increase is partly due to the Annual Wage Review that saw a wage jump in occupations covered by Awards, affecting 22 per cent of Employment Hero users.

The median hourly rate in the NT saw the most considerable MoM increase (3.4 per cent), while the ACT boasted the highest median hourly rate of all states and territories ($40.40). The median hourly rate for the Science, Information and Communication Technology industry was $58.00, as Healthcare and Community Services experienced the greatest MoM jump of 2.5 per cent. Under 18s also saw the largest MoM jump at 2 per cent.

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Further, the average employee growth marginally decreased (-0.1 per cent) since June 2023, with small businesses feeling the hit more than medium and large businesses. Industries saw a monthly decline almost across the board, except for Science, Information and Communication Technology, which saw MoM growth of 0.2 per cent. The ACT and SA also bucked the declining trend and saw marginal MoM increases, 0.1 and 0.04, respectively.

Ben Thompson, Co-founder and CEO of Employment Hero, said: “I expressed concern months ago that the challenges Australian workers would face in the second half of the year would be securing ample work hours and, worst case scenario, holding onto their jobs. A robust economy relies on the stability and growth of our SME sector. As our data has shown repeatedly, however, this is challenging when the rate at which wages are increasing in line with inflation is downplayed. Employees earning more is a great thing, and we know the positive impact this has on society. Still, we remain conscious of short-term gains that produce long-term pain for Australian workers moving further into the year’s second half.

“In these frankly brutal times for SMEs, seeing month-on-month declines in employment within the community as large corporations celebrate record profits is a bitter pill to swallow. With small businesses constituting nearly 99 per cent of our nation’s enterprises and providing jobs for 66 per cent of our workforce, it’s unsettling to observe in our Index a wage-price spiral engulfing SMEs, coupled with reduced working hours as a strategy to manage overhead pressures.

“New insolvency numbers released by ASIC recently showed 995 business collapses had been recorded since July. Undoubtedly, the current landscape tests Australia’s employment fabric as both sides acutely feel the pinch. On the one hand, employees are working fewer hours while grappling with escalating living costs. On the other, businesses confront the harsh reality that expanding work hours might be unfeasible, yet profitability could wane without doing so. It feels like a long road ahead for small businesses, but we must continue to weather this storm together,” Mr Thompson continued.

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