Australian SMEs hold on to top talent as wage growth slows to 2.2 per cent year-on-year

Australian business owners are in retention mode with their best people, but employees shouldn’t expect big pay rises anytime soon as annual wage growth slows at 2.2 per cent in September 2026 compared to the previous corresponding year. 

The latest Employment Hero jobs data shows an overall monthly uptick in national SME headcount, with employment growing 0.8 per cent in September compared to August, marking the strongest single month hiring gain since May 2026. Hiring was widespread, with headcount increasing across seven out of eight states and territories and in 12 out of 13 major industries.

Employment grew in 12 of 13 industries, led by the agricultural, mining, and energy sectors (up 2.2 per cent), whilst median wage growth slowed down in 11 of 13 industries. 

SMEs business owners in talent retention mode 

Commenting on the latest Jobs data, Employment Hero Managing Director for APAC James Keene said that Australian SMEs are taking a proactive, retention-first approach to workforce planning.

“When I speak with small business leaders across the country, the message is consistent: nobody wants to let good people go,” Keene said.

“In September, we saw a notable hiring gain of 0.8 per cent month-on-month, a welcome lift after three months of virtually flat headcount. But looking at the bigger picture, one good month doesn’t reverse the trend. The quarterly read shows that overall hiring momentum has been gently easing since March.”

“Holding onto those teams in a tight economic climate comes with clear trade-offs, which is why in September we might be seeing this drop-off in wage growth. This single sharp drop accelerates a gradual cooling pattern we’ve observed all year. Business owners are telling us that after months of absorbing higher overheads, something had to give, and right now, protecting job security is taking priority over pay increases.

“To navigate this, business leaders are relying more heavily on technology and AI to lift day to day productivity. It’s helping existing teams accomplish more without forcing owners to choose between overextending on overheads or cutting staff.”

Wage growth falls behind 4.0 per cent inflation rate to 2.2 per cent year-on-year 

Momentum has clearly slowed for wage growth, with year-on-year growth at its weakest in the reporting window.

On an annual basis, median wages are at 2.2 per cent vs. the same month in 2025, falling behind the inflation rate of 4.0 per cent. From August to September, median wages actually dropped 1.8 per cent.

The series was losing about half a percentage point or more over the nine months or so before September. The pace was gentle and masked by expected month-to-month volatility, but the direction of wages has been consistently down. 

Junior hires key engine of workforce growth

Younger Australians remain a key engine of workforce growth. Employees aged 18 to 24 recorded the highest monthly headcount increase (+1.3 per cent month on month) and continue to outperform all other cohorts in annual wage growth at 7.0 per cent year on year. 

Topical for younger Australians entering employment throughout the year has been the effect of rapid AI developments on their transition into the broader workforce. 

Commentators like software engineer Xharmagne Carandang expressed concern during an AI Roundtable Unfiltered expert podcast discussion that younger workers might miss out on “learning the foundations” of their chosen skillset, however, other evidence shows younger workers are leaning into integrating AI into their workflows as they would adopt any other new technology.  

In a September 2026 interview with The Australian Financial Review on AI augmentation, 24-year-old Eliza Hayman reported frequently using artificial intelligence to help mock up ideas, create renders and generate 3D vector data sets at a paid design internship at furniture maker King Living.

“The thought of AI taking over the creative process doesn’t really seem too threatening at this point. What I’ve found is that it’s hard to design products for humans without humans in the process,” Hayman said.