Australian small and medium businesses are staying the course despite challenging economic conditions, with a rebound in hiring momentum in May.
The latest Employment Hero Jobs Report, drawn from payroll data of 1.7 million employees across more than 23,000 businesses, shows SME employment grew 1.1 per cent month-on-month in May after a slight contraction in April. Casual recruitment remains strong, although wage growth has started to slow.
The figures suggest SME owners are continuing to invest in their workforces even as the broader economy loses steam, but are altering the way they hire. “SMEs are experiencing a more nuanced operating environment where hiring continues – albeit more strategic hiring,” says Employment Hero APAC Managing Director James Keene. “It’s encouraging to see SMEs return to growth in May, demonstrating the resilience that continues to underpin Australia’s small business sector.”
Businesses Are Growing Despite Economic Challenges
The resilience of small and medium businesses comes in spite of the bigger economic picture. GDP growth slowed to just 0.3 per cent in the March quarter, with households reining in spending and businesses facing higher operating costs. Unemployment sits at 4.5 per cent, while inflation is way above the Reserve Bank’s target band at 4.2 per cent, as the Middle East conflict pushes up fuel prices and disrupts supply chains.
But rather than pulling back, many employers are managing to expand. The 1.1 per cent month-on-month uplift in headcount in May follows a decline of 0.1 per cent in April. Annual employment growth among the cohort of established SMEs remains persistently strong at 8.4 per cent, a faster pace than at the same time last year.
“While economic headwinds remain a defining feature of the current environment, they are not yet stalling SME expansion,” says Keene. “The data shows that businesses are adapting. They are growing where possible, controlling costs where necessary and continuing to invest in workforce capacity in a targeted way to support business objectives.”
Casual Hires Give SMEs Flexibility Amid Uncertainty
The targeted approach to hiring can be seen through the continued surge in casual employment. The May Jobs Report reveals casual headcount has grown 10.8 per cent year-on-year and 1 per cent month-on-month.
“The continued strength in casual employment shows businesses value flexibility as they navigate changing economic conditions, while still maintaining access to the talent they need,” Keene explains.
The trend towards fractional hiring is also reflected in white-collar roles, with an 8.3 per cent year-on-year increase in Consulting and Strategy jobs. But the healthiest growth is in two standout sectors: Construction and Trade Services, and Administration and Office Support, up 1.7 and 1.6 per cent month-on-month respectively. For Construction, this contributes to annual growth of 10.9 per cent, while Administration roles have surged by 20.8 per cent year-on-year. This indicates that despite suggestions office admin roles could be disrupted by AI, there has yet to be a negative impact.
While Hiring Is Up, Wage Growth Has Slowed
Although small and medium businesses are still hiring, they appear limited when it comes to pay. The Jobs Report records a 3.9 per cent decline in casual wage growth month-on-month. A similar reversal can be seen in the overall figure, with a 1.6 per cent drop – the lowest result in 13 months. The year-on-year figure remains above inflation at 4.5 per cent.
Keene believes SMEs are becoming more measured in how they manage labour costs. “Businesses are still grappling with rising operating costs and broader economic uncertainty, so a moderation in wage growth after a sustained period of increases is unsurprising,” he says. “While overall wage growth remains solid, many employers are now focused on lifting productivity and efficiency alongside headcount growth.”
Every state recorded a month-on-month drop in wages, confirming it is a national trend, although South Australia and the ACT have the largest declines, of 2.7 and 2.4 per cent.
While lower wages have enabled small and medium businesses to keep hiring in May, continuing pressure on margins could eventually force these businesses to pause recruitment. Businesses will have to meet higher payroll costs when award and minimum wages increase on July 1, while also managing the impact of Payday Super on cashflow.
NAB explicitly warns of weaker labor demand ahead but, in better news for SMEs with loan repayments, it’s joined ANZ and Commonwealth Bank in forecasting the Reserve Bank will leave interest rates on hold for the remainder of 2026. Westpac is the only big bank still expecting rates to rise this year.
Among businesses navigating this uncertain environment, some are now focusing on making structural changes to keep growth sustainable.
“Increasingly, technology and AI are enabling businesses to do more with existing resources while continuing to invest in their workforce,” Keene says.
