Canadian small and medium-sized businesses reduced employment in August while wages continued to climb, according to new data from Employment Hero.
The company's latest Jobs Report found SME headcount declined 1.7 per cent year-over-year in August, marking the second consecutive month of negative annual employment growth. At the same time, wages rose 5.5 per cent from a year earlier, the highest annual increase recorded during the report's 13-month reporting period.
Employment contracts as wages rise
The data points to a divergence between employment levels and wages as SMEs enter the final quarter of 2026, with businesses reducing or limiting headcount while continuing to increase compensation for employees.
"Small businesses are being asked to do more with every dollar right now, and the labour market reflects that," said Chris Pinkerton, managing director at Employment Hero Canada. "What's interesting is that softer employment isn't translating into softer wages. SMEs may be more cautious about adding headcount, but they're still willing to pay for the talent they need. Heading into Q4, the challenge is increasingly about making every hire and every workforce investment count."
Employment Hero said the figures indicate businesses are taking a more deliberate approach to workforce growth while continuing to invest in employees.
The company said the report is based on aggregated and anonymized payroll data from approximately 2,600 businesses and 97,000 employees using its platform. It is intended to provide a monthly view of headcount, employment and wage activity specifically among Canadian small and medium-sized businesses.
Regional differences emerge
Employment trends varied significantly across the country in August. Ontario and British Columbia recorded year-over-year headcount declines of 2.6 per cent and 3.1 per cent, respectively, while Alberta, Quebec and Nova Scotia recorded employment growth.
Alberta's SME headcount increased 0.5 per cent year-over-year, while Quebec posted growth of 1.4 per cent and Nova Scotia recorded an increase of 2.4 per cent.
"The national picture only tells part of the story," Pinkerton said. "Labour market conditions can look very different depending on where a business operates. For small business leaders, that makes it increasingly important to understand what's happening in their own market and make hiring, retention and workforce decisions accordingly."
The regional figures suggest the national employment decline was not uniform across Canada's SME sector, with businesses in some provinces continuing to add employees.
Consumer-facing businesses maintain employment growth
The employment picture also differed by industry, with retail, hospitality and tourism businesses continuing to report year-over-year headcount growth despite the broader national contraction.
Employment Hero said headcount across those sectors was 1.7 per cent higher year-over-year. Wages in the sectors increased 2.3 per cent over the past three months, indicating continued growth in pay.
The company said the results show that a decline in employment nationally does not necessarily translate into less competition for workers, particularly among businesses that continue to require employees to meet customer demand.
"For SMEs heading into Q4, the question isn't simply whether to hire. It's where adding another person will have the greatest impact," Pinkerton added. "That puts a greater premium on retention, workforce planning and productivity. For small businesses operating with less room for error, making smarter decisions about their people and technology will be critical to sustainable growth."
Employment Hero's report provides a monthly snapshot of the SME labour market based on payroll activity from businesses and employees using its platform, offering a view focused specifically on the small and medium-sized business segment.