Employment Hero says wage growth across UK small and medium-sized businesses accelerated sharply in February, but the uplift is arriving alongside cost pressure and looming employment rule changes that many employers expect to pass on through higher prices.
The company’s latest Jobs Report, based on more than 120,000 employee records in small businesses, found wages rose 8.8% year-on-year in February, up from 5.6% in January. Employment growth also improved, rising 4.9% year-on-year after 4.4% the previous month, suggesting the gradual hiring recovery seen at the start of the year has continued.
Regional differences were notable. Wage growth in the North of England reached 12.5% year-on-year in February, underlining how competition for talent is still shaping pay decisions in parts of the market. At the same time, Employment Hero said employment growth remains below pre-April 2025 levels, pointing to a labour market that is improving, but not yet settled.
Separate research cited by the company suggests regulatory change is now a central concern. Employment Hero found 84% of small business leaders expect to make changes to manage the risks associated with employment rights reforms due in April, while 30% plan to raise prices. That creates tension around the headline pay figures, because stronger nominal wage growth does not automatically translate into stronger real disposable income if businesses are forced to recover higher costs elsewhere.
Kevin Fitzgerald, UK Managing Director at Employment Hero, said: “Our February data shows that UK SMEs are driving wage growth, with salaries up 8.8% year-on-year as businesses compete for talent amid ongoing cost-of-living pressures. While the Chancellor highlighted households feeling better off in the Spring Statement, the OBR forecasts unemployment to peak later this year, showing that the labour market is not out of the woods yet.”
The picture is one of resilience with qualifications. Small businesses are still hiring, and still paying more to secure staff, but the policy and cost backdrop is narrowing the room for manoeuvre. For households, the next question is whether wage growth can stay strong without being diluted by higher prices.
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