UK small businesses hit by hiring woes despite record wage rise

London – 30 June, 2022 – The UK’s small businesses are facing more woes as they struggle to fill open vacancies, according to new insights from Xero, the global small business platform.

Xero’s Small Business Index, which was unchanged in May at 86 points, is based on anonymised and aggregated data from hundreds of thousands of small businesses. It shows that the number of people employed in this vital part of the economy fell by 5 percent year-on-year (y/y) in May. In fact, there are now 11.1 percent fewer jobs in small businesses than there were in February 2020, before the pandemic began.

Despite stronger sales growth (14.3% increase y/y) and a record rise in wages among small firms (5% increase y/y), they appear to be struggling to compete with big business when it comes to salaries, perks and job security.

Concerningly, late payments to small businesses also increased in May, with the average time to pay rising by 1.1 days to 30.6 days. On average, payments were late by 8.8 days beyond the agreed terms, an increase of almost two days since the previous month.

This has a knock-on effect on small businesses’ ability to manage their cash flow and meet the higher wage expectations from current and prospective employees.

The battle for talent

In May, small businesses in the construction and manufacturing industries saw the biggest drop in employee numbers, falling 10.8 percent and 10 percent y/y respectively.

As construction and manufacturing make up 7.2 percent and 9 percent of total employment in small firms, an inability to fill vacancies in these sectors will have severe implications for the rest of the economy.

In contrast to all other industries, sales by small businesses in retail fell by 1.3 percent y/y. This is the second consecutive month that retail sales have fallen, and in May, it was the only sector to record negative sales growth. This highlights the impact the cost of living crisis is having on businesses that rely on consumers who are spending less on the high street.

Entering a busy summer season, the hospitality sector is offering record wages, 7.7 percent higher last month than in May 2021, yet attracting workers remains difficult, with jobs falling 3 percent y/y.

London was the only region to show jobs growth, at 2.3 percent y/y, while the West Midlands saw a staggering fall in jobs of 8.3 percent y/y, followed by the East of England at 7.5 percent y/y.

Alex von Schirmeister, Managing Director UK & EMEA at Xero, said: “Small firms are facing a major talent crisis. They are having to offer some of the highest wages in recent memory to compete for staff, which is just piling more pressure on them with other rising costs. That’s troubling in sectors such as manufacturing and construction that are inherently linked to other industries, like retail.”

“The government must do more to help in areas like late payments. When big businesses hold on to unapproved debt, it chokes small firms’ cash flow so they can’t compete for workers. We need to incentivize early payments and penalise late payers, and expose the repeat offenders.”

More information on the Xero Small Business Index May metrics is available here.

Media Contact

Clemmy Perlmutter | clemmy.perlmutter@xero.com | +44 (0)7976 005232

About Xero

Xero is a global small business platform with 3.3 million subscribers which includes a core accounting solution, payroll, workforce management, expenses and projects. Xero also provides access to financial services, and an ecosystem of more than 1,000 connected apps and more than 300 connections to banks and other financial institutions. Through Xero’s open platform, small businesses can connect to a range of solutions that help them run their business and manage their finances. For three consecutive years (2020-2022) Xero was included in the Bloomberg Gender-Equality Index. In 2021, Xero was included in the Dow Jones Sustainability Index (DJSI), powered by the S&P Global Corporate Sustainability Assessment. Xero has been named as a FIFA Women’s Football partner under FIFA’s new commercial structure.

About Xero Small Business Insights

The aim of Xero Small Business Insights is to create insights to help inform decision makers in support of the small business economy as a whole. Accenture worked in collaboration with Xero on the design and methodology of the Index prior to February 2022. The principal source of small business insights in this report is customer data from Xero - a small business platform that supports online accounting and a range of other applications. Xero are responsible custodians of our customers' sensitive data and do not release any data that could identify individual businesses. The data used is aggregated and anonymised to ensure the privacy of Xero subscribers, and their counterparts.