Small business wages see largest rise on record to near inflation rate - Xero

Small businesses are raising their wages close to the rate of inflation, new data shows.

Accounting software firm Xero's Small Business Index revealed wages in June rose 6.8 percent annually, the largest rise since the series began in January 2017.

The increase is just short of annual inflation, which rose a whopping 7.3 percent year-on-year in June. 

Employee hourly earnings.
Employee hourly earnings. Photo credit: Xero

The construction sector saw the biggest wage growth - 8.1 percent year-on-year - while regionally, Bay of Plenty, Hawke's Bay, Otago and Waikato all recorded growth of 7.3 percent.

The report found the higher wages are helping small businesses attract more staff with jobs growing for the third consecutive month, up 4.4 percent in June from 3.7 percent in May.

However, the rise in wages could be costing businesses their profits with the report finding sales only grew 3.3 percent in June, the slowest growth rate since September 2021.

All industries recorded slower sales growth, with hospitality and retail trade recording the weakest result. 

But once price impacts are taken into account the volume of sales fell in June by 4 percent, with small businesses selling fewer goods and services than in June 2021.

Xero's managing director for New Zealand and Pacific Islands Craig Hudson said it is a balancing act for businesses. 

He said while strong wages are a good goal for small businesses to aspire to and help attract staff, it's important it is matched by sustainable sales growth.

"It's the human element of being a small business owner. They're close to their staff and want to help them weather the impacts of inflation through good wages," Hudson said.

"At the same time, they're in touch with their customers, which introduces hesitancy to raise prices because of the cost of living challenges facing their community."

As a result of the strong upswing in wage growth and jobs, the Small Business Index rose 23 points in June to a record high of 146 points.

Small Business Index.
Small Business Index. Photo credit: Xero

However, Hudson warns if inflation continues to climb and finances become tight, these conditions could change in the coming months, particularly if sales growth continues to slow.

"This is something small business owners need to prepare for. It's essential they stay on top of their books to maintain this intricate balance."