NEWS: Wage bills surge for small businesses

As reported by The Standard, small businesses face rising wage bills amidst ongoing cost pressures, despite some relief in other overheads, signalling economic challenges ahead

The latest Sage small business tracker, compiled with the Centre for Economics and Business Research, found that while earnings growth is easing back more widely across the UK, total wage bills are continuing to rise for small firms at a rapid pace.

It showed that SMEs saw nominal wages increase by 13.8% in the final three months of 2023, up from growth 11.1% in the previous quarter.

This comes despite an easing in wage growth seen nationwide, with official figures on Tuesday revealing that regular pay, excluding bonuses, fell back to 6.1% in the three months to January – the slowest growth for more than a year.

It signals the ongoing wage cost pressures faced by small firms as they battle to attract and retain workers, even though other overheads are reducing, according to the report.

The report said: “Following the pandemic, wage growth within small businesses – as all businesses – has picked up markedly.

“This reflects the ongoing tightness of the UK labour market, where workers have gained increased bargaining power, as well as the increased cost of living.”

Sage said its data is “proving more volatile compared to the Office for National Statistics data, indicating small businesses experience more wage growth variability than the wider UK economy”.

The figures from the report, which analyses anonymised Sage Accounting and Payroll data of more than 136,000 UK businesses, highlights that there are still underlying inflation pressures in the economy, which may hamper the Bank of England’s battle to bring inflation back down to its 2% target.

The Bank has been keeping a close eye on wage data in particular in its bid to rein in inflation.

But with small firms still seeing their wage bills rocket higher and with the national living wage set to rise from £10.42 an hour to £11.44 from April for nearly three million people, there are fears that it may hamper the Bank’s efforts on inflation.

However, the report also flagged the resilience of the small business sector despite the woes in the economy.

It revealed small business revenues rose 0.9% on an annual basis in the fourth quarter, while average real underlying earnings surged 23.2% in the year to the fourth quarter, up from growth of 10.5% in the previous three months.

This comes despite the UK slipping into a technical recession in the final six months of 2023.

The report also found that, in spite of the steep increases in wage bills, overall cost pressures have started to abate, with real overheads falling by 1.8% in the year to the fourth quarter, which is the largest annual decline seen over 2023.

Derk Bleeker, chief commercial officer at Sage, said: “Small businesses are continuing to show signs of weathering tough economic conditions.”