Wage rises are being fuelled by problems in finding and retaining staff, taking them to their highest level since May, according to the latest data from a leading small business platform.
Xero’s Small Business Index, based on anonymised and aggregated responses from hundreds of thousands of firms, rose by seven points in January to 89 points. This was driven by those wage rises, stronger sales revenue and a smaller decline in jobs.
Salaries rose 4.8 percent year-on-year in January – equal to the record high for this series recorded in last May. This is mirrored in the latest ONS earnings figures, where regular pay (6.7 per cent year-on-year) showed the strongest growth rate seen outside the pandemic.
All industries saw wage rises, but the largest was in the information, media and telecommunications (+5.9 per cent) sector. The smallest wage rises were in rental, hiring and property (+3.8 percent).
Alex von Schirmeister, Xero’s UK Managing Director, said: “Despite increasing wages and some improvement in employment levels, we know that small businesses are still struggling to find the workers they need. National vacancy levels have softened but are still high by historical standards. This is forcing many business owners to offer larger pay rises to keep or attract new staff.”
Employment shows early signs of recovery
Rising wages could be having an impact on the job market and retention. While the number of people employed by small businesses declined 2.5 per cent – the tenth consecutive month of year-on-year jobs decline – it was the smallest drop since April 2022.
London is leading the jobs recovery as the only region employing more staff than a year ago (+2.2 percent). However, traditionally large employing industries such as manufacturing (-6.1 percent) and hospitality (-5.8 percent) are lagging behind and employing far fewer people than they were a year ago.
Small businesses waiting longer to be paid
Late payments continue to get worse for small businesses already struggling. Time to be paid rose by 0.6 days to 30.5 days in January, the longest payment time recorded since September 2020. In January, payments to UK small businesses were also late by an average of 8.4 days, a significant rise of 1.8 days since December 2022, and the highest level since August 2020.
Von Schirmeister added: “It’s unacceptable that payment times to small businesses continue to rise. The outcome of the UK government’s late payments consultation cannot come soon enough – small businesses are critical to our economy and communities, but can’t drive UK growth without stricter policies to protect them.”
And in recognition of the growing freelance market, Fiverr International today announced the launch of Project Partner, a service designed to manage customers planning large-scale projects that, with a lack of available staff, have to rely on large pools of freelancers.
Shai-Lee Spigelman, General Manager of Fiverr Business said the bespoke partner element acts as “the creative service director of a top notch freelancing team, helping all members work together seamlessly toward project completion”.
He added: “We saw Project Partner as a solution for the growing number of hiring managers and businesses that were turning to Fiverr for complex services and projects that would require the input of several freelancers on our platform.”