SMEs embrace AI and growth despite economic pressures

Employment Hero APAC managing director James Keene said the data reflected a shift towards more targeted recruitment strategies, as employers balanced growth ambitions with ongoing economic uncertainty. 

“SMEs are experiencing a more nuanced operating environment where hiring continues – albeit more strategic hiring,” he said.

“It’s encouraging to see SMEs return to growth in May, demonstrating the resilience that continues to underpin Australia’s small business sector.” 

The resilience in SME hiring occurred against a backdrop of slowing economic growth and persistent cost pressures. 

GDP slowed to just 0.3 per cent in the March quarter, as consumers tightened spending and businesses contended with higher operating expenses. 

Simultaneously, unemployment stood at 4.5 per cent, and inflation remained elevated at 4.2 per cent, with conflict in the Middle East driving fuel price increases and creating further disruption across global supply chains. 

Rather than pulling back, many employers continued to expand their workforces. 

SME headcount increased by 1.1 per cent month on month in May, reversing a 0.1 per cent decline recorded in April. 

Annual employment growth among established SMEs also remained robust at 8.4 per cent, outpacing the rate recorded at the same time last year. 

Keene said the figures highlighted SMEs' ability to remain agile, balancing growth opportunities with ongoing cost pressures and economic uncertainty. 

“While economic headwinds remain a defining feature of the current environment, they are not yet stalling SME expansion,” Keene said. 

“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.” 

This targeted approach to hiring was particularly evident in the continued growth of casual employment. 

The May Jobs Report indicated that casual headcount increased by 10.8 per cent year on year and 1 per cent month on month, highlighting employers' preference for greater workforce flexibility amid ongoing economic uncertainty. 

“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 said. 

Although hiring activity remained resilient, wage growth showed signs of softening. 

Casual wage growth declined by 3.9 per cent month on month in May, while overall wage growth fell by 1.6 per cent, its lowest level in 13 months. 

Even so, annual wage growth held at 4.5 per cent, remaining above the inflation rate and preserving real wage gains for workers. 

According to Keene, the moderation in wage growth reflected the balancing act many SMEs were undertaking as they sought to manage costs while continuing to expand.  

“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 said. 

“While overall wage growth remains solid, many employers are now focused on lifting productivity and efficiency alongside headcount growth.” 

Every state and territory recorded a month-on-month decline in wage growth, reinforcing that the slowdown was a nationwide trend. 

The sharpest falls were recorded in South Australia and the ACT, where wages declined by 2.7 per cent and 2.4 per cent, respectively. 

Businesses will also have to meet higher payroll costs following the implementation of the Payday Super, which takes effect on July 1. 

As recently reported, nearly four in 10 small and medium-sized businesses said they were unprepared for payday super. 

NAB warned that labour demand was likely to weaken in the months ahead. However, the bank joined ANZ and Commonwealth Bank in forecasting that the Reserve Bank would keep interest rates on hold for the rest of 2026, with Westpac remaining the only major bank expecting further rate rises. 

Among businesses navigating this uncertain environment, some are now focusing on structural changes to sustain growth. 

“Technology and AI are enabling businesses to do more with existing resources while continuing to invest in their workforce,” Keene said.