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Wages growing in small business, but not evenly

Posted: 7 May 2018 7:00 am
small business

small business

The latest stats from Xero show disparities across industry and region.

Ahead of tomorrow's Budget announcement, the latest State of Small Business report from Xero has revealed wage growth for Australian small businesses. But not all businesses are growing at the same rate. There are large disparities in wage growth for small businesses according to industry as well as whether they are in regional or metro areas.

Xero's report provides a snapshot of Australia's small businesses based on anonymised, aggregated data from its subscribers, which number in the hundreds of thousands.

Differences in industry

Businesses in the rental, hiring and real estate services industry experienced the highest median wage growth (7%) followed closely by the financial and insurance services industry (6.6% and public information and safety (6.1%).

The lowest wage growth was seen in the professional, scientific and technical services industry (2.6%), followed by mining (2.7%) and the arts and recreation industry (3.3%).

Location, location, location

The report found that wage growth was higher for metropolitan businesses compared to regional businesses across all states except Tasmania, where metro businesses saw wage growth of 0.7% compared to wage growth of 3.2% in regional areas. The smallest growth difference was 0.5% in New South Wales and Western Australia, with the largest wage growth difference between regional and metro areas being experienced by businesses in the Northern Territory (3.4%).

Trent Innes, Xero's managing director in Australia, said that the wage growth disparity between metro and regional areas reveals a continued need to develop economic opportunity across Australia.

"Small businesses are the lifeblood of many regional towns, yet there’s still a major wage divide compared to metro areas," Innes said.

Economist at AlphaBeta Andrew Charlton said you see this disparity because the types of jobs that have fast-growing wages, such as professional, management and IT jobs, tend to be concentrated in metro areas.

“Also, many of the regional industries – especially mining and agriculture – are experiencing slightly slower wage growth this year.”

Payment times improving

But while not all businesses have experienced the same wage growth, there has been an improvement in payment times. Small businesses waited an average of 34.2 days to be paid on a 30-day invoice, which, while still longer than it should be, is the best payment time in three years.

Payment times have long been an issue for small businesses and have a considerable impact on cash flow and the ability of small businesses to grow their revenue. The improvement in payment times is certainly a move forward, but Innes says there is still work to be done.

"Both the government and the Business Council of Australia pledged to pay businesses within 20 calendar days. This pledge has already potentially led to positive change over the past year," said Innes.

Innes notes that while small businesses waited an average of 38.8 days to be paid in January 2018 for invoices on 30-day payment terms, this is a major decrease on two years ago. He also said almost every month in 2017 saw an improvement in payment times versus the prior year.

"Getting paid faster is a key contributor to a business' cash flow, and so faster payments means healthier businesses. While there's progress, it is still considered normal to receive payments for goods or services late."

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