Full-time employment in UK small businesses grew in May, but wages declined, according to Employment Hero’s data, which is derived from payrolled employees on its platform.
UK wage growth, which in previous months had been tentatively recovering across the SME sector, is showing signs of declining, with the median full-time salary across UK SMEs standing at £43,129 in May, the lowest figure recorded since November 2025. Full-time pay is down -0.7% on the previous month and -1.5% compared to three months ago.
Millennial Pay Takes the Deepest Cut
No age group felt the impact more than millennials. Full-time Gen Y workers saw their pay fall -1.9% in the three months to May, compared with a -1.5% decline for the full-time workforce as a whole over the same period. May also marks the second consecutive month where millennial wage growth has been the lowest of all age cohorts and the third consecutive month of negative growth for the generation on the quarterly measure, a pattern that moves this well beyond a one-month anomaly.
With millennials making up more than a fifth of the UK population, the generation’s steeper-than-average pay decline signals a growing financial squeeze on the country’s largest working cohort, with potential ripple effects on consumer spending and the wider UK economy.
That’s a cohort also already carrying the most acute financial pressure in the UK economy. The Building Societies Association’s Generation Stuck report from last year found 59% of renters aged 25-44 expected to be homeowners by now. For those who have become homeowners, Hamptons research from June 2025 found that millennials who bought in 2011 will pay more than double in the second half of their mortgage term what Baby Boomers and Gen Xers paid in equivalent years – £185,642 in today’s prices, compared with around £85,000 for previous generations.
While this squeeze isn’t new, it is deepening. The Resolution Foundation’s Living Standards Outlook 2026 found that rising housing costs, frozen tax thresholds and higher council tax mean household incomes are projected to stagnate again later in the decade unless real wage growth recovers materially. For the generation that can least absorb a sustained pay cut, May’s figures make that projection harder to dismiss.
The fall brings median SME full-time pay back to levels last seen before the tentative recovery that ran through the latter half of 2025. Whether that recovery resumes or this marks a more sustained reversal is the question May’s data can’t yet answer on its own.
Kevin Fitzgerald, UK Managing Director at Employment Hero, believes this pattern is visible across the SME sector. “Millennials are carrying more financial pressure than any other generation right now – mortgages, childcare, the rising cost of everything – and our data shows their earnings are moving in the wrong direction at exactly the wrong moment. That’s not just a personal problem for the workers involved; it’s a business problem for the employers who rely on them.”
More Jobs, Lower Pay
Full-time employment headcount across UK SMEs rose 1.2% month-on-month in May and is 0.6% above where it stood three months ago. While that may seem like a sign of resilience at first glance, employment growth at that rate does little to offset the wage compression eating into take-home pay for those already in work, and the gap between rising headcount and falling salaries creates pressures that the headline figures don’t capture.
Part of the explanation may lie in the rising cost of employing people, with the full time cost of employing someone 9.6% more than it was a year ago. The Employment Rights Act, which has already brought in statutory sick pay from day one of employment and is set to reduce the unfair dismissal qualifying period from two years to six months from January 2027, is adding to compliance and administrative costs for SME employers.
Recent research from Employment Hero found that 78% of SME leaders believe the reforms will have a financial impact on their business. When the cost of each hire rises, the pressure to contain base salaries tends to rise with it.
For HR leaders and business owners, the more consequential number in this data remains the -1.9%. Millennial employees are absorbing real pay losses during their peak earning years, at precisely the point when their financial commitments leave the least room for it.
Kevin added: “What our data shows is that businesses are hiring, but they’re doing it in an environment where the cost of employment has risen considerably, and that pressure has to go somewhere – right now it’s going into wages. If that continues through the summer, the conversation employers will need to have shifts from recruitment to retention.”
For UK SMEs, the data presents a compounding problem: a workforce that’s growing, but earning less, with the employees carrying the heaviest financial load outside work taking the steepest cuts inside it. If May’s figures mark the start of a trend rather than a one-month dip, the wage recovery that briefly took hold across the sector last year will need more than headcount growth to return.
