Australian SMEs increased headcount by 5.5% and raised wages above inflation, yet hours worked fell. Ben Thompson explains the paradox reshaping the labour market.
What’s happening: Australian SMEs are adding staff at the fastest pace in months and lifting wages above inflation, yet hours worked continue to decline. Employment Hero’s September Jobs Report shows employment rose 5.5% year-on-year whilst hours worked fell 0.2%, creating a labour market paradox as unemployment hits its highest level since November 2021.
Why this matters: The divergence between rising headcount and falling hours suggests Australian businesses are fundamentally reshaping how they deploy labour during economic uncertainty. With inflation at 3% and interest rates on pause, the shift could signal either a productivity drag or early evidence that automation is enabling the same output in fewer hours.
Australian small and medium enterprises are navigating a labour market contradiction, simultaneously adding workers and raising wages whilst cutting back the hours their employees actually work.
Employment Hero’s latest September Jobs Report reveals employment rose 5.5% year-on-year, 1.9% quarter-on-quarter and 0.8% month-on-month across its platform of SME clients. Median hourly wages climbed to $45.20, marking a 5.0% annual increase that outpaces the current 3% inflation rate.
Yet hours worked tell a starkly different story, declining 0.2% year-on-year and 0.6% month-on-month, continuing what Employment Hero describes as abysmal movement throughout 2025.
Hiring accelerates despite uncertainty
Ben Thompson, co-founder and CEO of Employment Hero, said the split between headline unemployment figures and SME behaviour makes this moment particularly important to watch.
“Recent headlines would make any Australian feel uneasy about the state of the labour market and that is showing up in behaviour. But our data shows it’s not all doom and gloom. Employers are lifting headcount at a faster pace and offering higher hourly pay to secure capability,” Thompson said.
The report shows casual employment grew 8.8% year-on-year, although casual hours declined 2.0% over the same period. Construction and trade led employment growth at 7.6% year-on-year, whilst teen employment climbed 23.9% annually and employment for 18-24 year olds rose 7.0%.
This shift is unfolding as unemployment has climbed to its highest level since November 2021, inflation sits at the top of the RBA’s target band, and interest rates remain on pause for the second month. Business confidence remains fragile and households report mounting financial pressure, yet employers appear to be selectively hiring and lifting hourly rates to secure required capability.
Wageflation puts pressure on SMEs
Thompson highlighted what Employment Hero terms “wageflation”, where wages are growing faster than inflation despite consumer price index increases to 3%.
“In fact, wages are growing faster than inflation despite CPI increasing to 3%. We call this ‘wageflation’; it’s good for workers struggling with high costs, but it puts additional pressure on small businesses,” he said.
Wages grew fastest in construction and trade, up 6.2% year-on-year, followed by science and technology at 5.5% annually. The median hourly wage increased 2.6% quarter-on-quarter and 0.5% month-on-month.
The hours worked mystery
The persistent decline in hours worked presents what Thompson describes as the most puzzling element of the current labour market. Whilst overall hours fell 0.2% year-on-year and 0.6% month-on-month, 18-24 year olds bucked the trend with hours increasing 4.4% annually.
“What’s more puzzling is we have not seen a meaningful improvement in hours worked for months. It could signal the productivity drag that has been building across the economy or it could be the first sign that AI and automation are enabling the same output in fewer hours. The shape of work is shifting even if the macro picture still looks fragile,” Thompson said.
Job-hugging replaces ambition
Thompson said the data points to a fundamental shift in employer strategy, moving from volume-based hiring to capability and retention-focused recruitment.
“We are in a risk-averse, side-hustle economy. Many workers are ‘job-hugging’, or choosing security over ambition due to the state of the market. The employers that win from here will be those that can offer stability, internal mobility and genuine productivity gains, not just headcount growth,” he said.
The findings arrive as the RBA maintains the cash rate following earlier cuts in 2025, with the central bank flagging caution over inflation persistence in some areas. The unexpected rise in unemployment has prompted some economists to suggest the RBA may need to reconsider its timeline for further rate adjustments.
For the more details on the Jobs Report, visit https://employmenthero.com/insights/jobs-report/.
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