New trends indicate a 'very real threat' to SME sector's future
Annual employee growth rate of small and medium enterprises (SMEs) in Australia declined to six per cent in April 2024, ringing warning bells for the SME sector's future.
Employment Hero's latest SME Index revealed that the employee growth rate almost halved from 11% in April 2023 to six per cent in April 2024.
By location, Victoria and the Australian Capital Territory registered the lowest annual employee growth rates with 5.6. The highest was in South Australia with 8.4%.
'Unsustainable' wages growth
These findings come as wage growth in SMEs surge at an "unsustainable rate," according to the report. The index revealed that year-on-year wages are up 7.8%, while the month-on-month increase nearly doubled to 2.2% in April 2024.
This puts the median hourly rate at $39.21, up from the previous $38.34 a month ago.
"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," said Eddie Kowalski, Senior Insights Manager at Employment Hero, in a statement.
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"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."
Government support needed
Ben Thompson, CEO and co-founder of Employment Hero, said their findings show that the SME sector is at a "crossroads."
"While growth exists month on month, the overall trend is downwards. I fear things may worsen before they improve," he said in a statement.
He noted that if the employee growth rate continues to decline while wages and operational costs rise, Australia could see a significant number of SMEs struggling to survive.
"These trends signal a very real threat to the future of the SME sector," Thompson said.
The Australian government recently unveiled a $641.4-million investment dedicated for targeted support for small businesses in the 2024-25 budget.
Thompson noted that this provided some much-needed support for SMEs, but it won't be enough to address the threats they're facing.
"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 closure altogether," Thompson said.