SME wages fall in January as hiring shows tentative recovery, report finds

Wages among UK small and medium-sized enterprises (SMEs) declined in January for the first time in a year, while employment growth showed signs of improvement, according to Employment Hero’s latest Jobs Report.

The analysis, based on payroll data from more than 115,000 employees in small businesses, found wages fell 1% month on month in January 2026, marking the first monthly contraction since January 2025.

The decline was most pronounced in the North of England, where wages dropped 4.9% over the month.

Despite the monthly fall, year-on-year wage growth improved significantly, rising to 5.6% compared with a 2.6% decline a year earlier.

Employment Hero said this represents the first above-inflation increase since June 2025.

The report also indicated a gradual recovery in hiring.

Employment growth rose 0.6% between December 2025 and January 2026, while year-on-year employment growth reached 4.4% – the highest level since March 2025 – suggesting the labour market may be stabilising after a period of slowdown.

However, employment growth remains below levels seen before April 2025, indicating the recovery is still in progress.

Kevin Fitzgerald, UK managing director at Employment Hero, said: “January’s wage dip is an early warning sign.

“Small businesses are heading into 2026 facing higher wage bills and significant regulatory change in April and many are already tightening the purse strings.

“While year-on-year employment growth is improving, the recovery is fragile. If costs continue to rise faster than confidence, pay growth and hiring could be the first casualties.

“Policymakers need to be careful not to overload the very businesses driving the UK’s employment recovery.”