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Here's what small businesses are doing instead of increasing pay

Mediafeed 1/18/2023 Jennie Josephson

According to recent Intuit QuickBooks payroll data, employees of almost 500,000 small businesses in the US, Canada, and the UK have received big pay increases over the past 12 months, but inflation has risen faster. We wanted to understand more about this trend, so QuickBooks commissioned a survey of 2,250 small business decision-makers in the US, UK, and Canada.

The Intuit QuickBooks Pay and Benefits Survey 2022* found that in the past 12 months, small business employees in the US, Canada, and UK have been proactively asking for pay increases due to inflation. Many small business owners have listened, but are struggling to keep up with pay demands. In the next 12 months, will small businesses be able to increase pay to meet demand? 

Pay increases rose in the last 12 months

Two-thirds (66%) of small businesses surveyed in the three countries say they have given larger than usual pay increases in the last twelve months. In the UK, 51% of small businesses said they gave significantly larger pay increases.

Pay increases rose in the last 12 months © Provided by Mediafeed Pay increases rose in the last 12 months

Inflation outpaces pay raises

Employees have not been shy about telling employers what they need and why. Almost nine out of 10 (88%) mentioned inflation when asking for pay increases this year. And 68% of small businesses expect pay demands to get more frequent over the next 12 months.

Inflation outpaces pay raises © Provided by Mediafeed Inflation outpaces pay raises

Despite this communication between small businesses and their employees, recent QuickBooks Payroll data shows pay raises have not kept pace with inflation. Increased labor costs are a big concern for small businesses. More than three in five (63%) small businesses with current job openings said it has been “very” or “somewhat” hard to fill them.

Filling open jobs © Provided by Mediafeed Filling open jobs

As a result of these hiring challenges, 79% of small businesses are already turning to contractors or gig workers to fill the hiring gap.

Freelancers in small business © Provided by Mediafeed Freelancers in small business

Small businesses see more jobs ahead, but not more pay raises

Small businesses say they see more job openings ahead. More than two-thirds (69%) say their business will have “significantly” or “somewhat” more job openings ahead than in the last 12 months. These businesses said strong business growth and a softer jobs market were factors driving an increase in job openings.

Small businesses see more jobs ahead, but not more pay raises © Provided by Mediafeed Small businesses see more jobs ahead, but not more pay raises

However, it is unlikely that pay will continue to rise at the same pace. Three-quarters (75%) of small businesses in the US, UK and Canada, say they have increased pay “as far as we can go” and that “anything higher is currently unaffordable.” Looking ahead, this suggests pay is unlikely to continue rising as fast as it has been over the past 12 months—especially in the UK.

Small business pay increase © Provided by Mediafeed Small business pay increase

As a result, 49% of small businesses surveyed expect that it will become harder to retain good employees in the next 12 months. In the UK, 40% of respondents say it will be significantly harder to retain good employees.

Retaining employees © Provided by Mediafeed Retaining employees

Benefits backlash

More than half (58%) of the small businesses surveyed say they are expanding employee benefits alongside larger than usual pay increases.

Benefits backlash © Provided by Mediafeed Benefits backlash

The extra benefits are not only to attract and retain workers but to try to slow the pace of wage increases. Benefits include more time off, flexible work options, and better health benefits.

Small business benefits © Provided by Mediafeed Small business benefits

But, due to inflation, benefits are currently less attractive to some employees than an increase in pay. Of those employers who did expand benefits instead of increasing pay, 72% reported some backlash.

Benefits and complaints © Provided by Mediafeed Benefits and complaints

A closer look: Hiring woes in the UK

In many cases, small businesses in the UK face much greater challenges than in the US and Canada. Almost nine out of 10 (88%) of UK small businesses say they have been trying to hire employees this year, more than in the US or Canada. Yet more than two-thirds of employers surveyed in the UK (69%) say it’s harder to hire because applicants lack the necessary skills, and their demands for pay and benefits are too high. Notably, 62% of UK small businesses surveyed said applicants didn’t show up on the first day of work, compared to about 30% of applicants in the US or Canada. 

Two in five (40%) of UK small businesses think it will get significantly harder to retain good employees over the next 12 months, compared to just 12% in the US and 17% in Canada.

A closer look: Hiring woes in the UK © Provided by Mediafeed A closer look: Hiring woes in the UK

Labor cost pressures may also be greater in the UK. More than half (54%) of UK small businesses surveyed “strongly agree” they have already increased pay as far as they can, compared to just 32% in Canada and 37% in the US.


* Intuit QuickBooks Pay and Benefits Survey 2022

Intuit QuickBooks commissioned an online survey in September 2022 of 2,250 small business owners and decision-makers (comprising payroll, accounting, and human resources (HR) professionals) in the US, UK, and Canada. Of these, 66% were small business owners (1,488), 21% were human resources professionals (474), and 13% were payroll and accounting professionals (288). All respondents were 18+ years of age. There were 1,000 respondents from the US, 500 respondents from Canada, and 750 respondents from the UK. Small businesses are defined as having less than 100 employees. Percentages have been rounded to the nearest decimal place, so some charts or statistics shown here may not add up to 100% but 99% or 101% instead. Responses were collected in an online survey using Pollfish audience pools and partner networks with double opt-ins, random device engagement sampling, and post-stratification to ensure accurate targeting and results. Respondents received remuneration.


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This article originally appeared on the Quickbooks Resource Center and was syndicated by

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