Under pressure: SMEs rethink their staffing decisions as costs bite

Recent research by ScotPac reveals that almost half of Australia’s small and medium-sized enterprises (SMEs) are having to rethink their staffing decisions in the wake of rising cost pressures.

From 1 July 2025, millions of Australian workers received a pay increase, thanks to a 3.5% hike in the minimum wage. At the same time, the super guarantee rose from 11.5% to 12% of ordinary time earnings for employees – the fifth such increase since July 2021.

To make matters worse, the Productivity Commission says Australia is in the midst of its worst labour productivity growth on record. This means that the output per hour worked or per worker has been declining or growing at a very slow pace compared to historical trends.

Various factors are responsible for this, including the lingering effects of the COVID-19 pandemic, changes in the composition of the workforce and potential underinvestment in certain areas.

That’s bad news for employers. Low productivity can increase costs, reduce revenue and hinder growth. It could also limit overall profitability, and result in negative cash flow and difficulties in securing funding. The lack of cash flow can prevent businesses from investing in new technologies and other initiatives that could improve productivity.

ScotPac has found that rising costs and falling productivity are forcing many Australian SMEs to reassess their staffing strategies.

In its bi-annual SME Growth Index Report, it states that 45% of SMEs plan to boost their use of contractors to cope with the higher expenses as part of a larger trend away from permanent hiring. In addition, 30% of SMEs have frozen hiring new staff, 14% are increasingly outsourcing, and 3% are cutting back on employee hours or total headcount. Worryingly, 5% say they intend to close or sell their businesses.

Strategies to consider

Here are some strategies you can apply to deal with rising workplace costs:

Get technology savvy. Automate routine tasks that are repetitive, time-consuming and prone to human error.  This will free up employees for more strategic work. By strategically implementing artificial intelligence (AI) and providing adequate staff training, you can boost productivity, improve service delivery and foster a culture of innovation.

Apply lean and continuous improvement practices. Lean methodologies, such as Kaizen, SMED and 5S, are a set of management principles and techniques focused on maximising value for the customer while minimising waste. This approach emphasises efficiency, quality and continuous improvement through streamlined processes and reduced inefficiencies. Continuous improvement, for example, involves the persistent pursuit of incremental improvements through iterative refinements and innovative adaptations. Similarly, Kaizen is about building a culture where all employees are actively engaged in suggesting and implementing improvements to products and the company.

Adopt data-driven management. This is where decisions are made based on analysed data rather than intuition or guesswork. It involves collecting, analysing and interpreting data to guide business strategies and operations, leading to improved efficiency, performance and informed growth. Data-driven insights enable businesses to anticipate market shifts and identify emerging opportunities. Through data analytics, businesses can create detailed customer profiles, anticipate needs and personalise offerings. Using real-time dashboards and cash flow forecasting can help you make more agile decisions.

Upskill your workforce. Offer targeted training to improve employee efficiency, cross-skill staff and reduce dependency on external hires. Consider introducing performance-based bonuses or recognition programs to motivate employees to be more productive. Remember that hybrid or remote work, when possible, can improve employee satisfaction and reduce overheads.

Review your pricing strategies

Instead of just competing on price, shift to pricing based on the value delivered, such as quality, service, and convenience. Bundling products or services may boost your average revenue per sale without increasing wage costs. Also, identify which products or services are most profitable and consider phasing out or automating low-margin ones. Develop niches or specialised offerings that justify higher prices and attract loyal customers. This approach, known as niche marketing, can help you to become an expert in a particular area, which could lead to greater profitability, efficiency, and customer loyalty.

Improve employee retention and reduce turnover costs. High turnover adds hidden wage and recruitment costs. Focus on building a positive culture and employee engagement. Consider offering non-monetary benefits such as flexible schedules, career development or purpose-driven work environments that employees value.

Collaborate and outsource smartly. Look into partnering with other SMEs or sharing resources such as logistics, tech platforms and marketing. Outsource non-core tasks and use freelancers or third-party providers for functions such as IT, payroll, or marketing, where feasible.

Get advice

ScotPac CEO Jon Sutton says the wage and super hikes are understandably prompting SMEs to look at their staffing levels and, in some cases, make difficult decisions.

“However, managing higher wages and super payments doesn’t have to come at the expense of growth or stability”.

“We encourage all business owners to sit down with their advisors as a first step, assess the impact of regulatory changes on their cash flow, and explore all possible management strategies. With the right operating and finance solutions in place, SMEs can continue to grow and support their teams even as employee costs rise.”

Rising wage and super obligations are adding to the pressure on SMEs already navigating low productivity and tight margins. But there are levers business owners can pull to adapt. By embracing smart technology, reviewing operations, upskilling staff and exploring finance options early, SMEs can build resilience and protect their long-term potential. The sooner you take stock and plan ahead, the better placed you’ll be to weather challenges and move forward with confidence.

Conclusion

Rising wage and super obligations are adding to the pressure on SMEs already navigating low productivity and tight margins. But there are levers business owners can pull to adapt. By embracing smart technology, reviewing operations, upskilling staff and exploring finance options early, SMEs can build resilience and protect their long-term potential. The sooner you take stock and plan ahead, the better placed you’ll be to weather challenges and move forward with confidence.