Small Business, Big Opportunity: How AI is transforming hiring and unlocking talent

Australia is at the cusp of an AI-driven economic transition, with small and medium-sized enterprises (SMEs) positioned to unlock a wave of productivity growth.

LinkedIn data shows SMEs are adding employees, along with digital and AI skills, at faster rates than larger firms, demonstrating adaptability and potential to grow. With the right tools, SMEs can translate this momentum into broader economic benefits.

Talent shortages, high turnover, and limited HR capacity are constraining SME growth, while the pace of technological change makes digital adoption and workforce upskilling essential for competitiveness.

A 'skills-first' approach prioritises a person’s capabilities over traditional proxies such as degrees or past job titles. As skill requirements evolve faster than ever, harnessing AI to operationalise this approach enables employers to connect workers to roles more effectively — expanding talent pools, improving job fit, and accelerating workforce adaptation. This is especially powerful for SMEs, helping them compete more effectively for talent.

Through case studies, product examples and data insights, this report shows how a responsible, skills-first use of AI can open talent pathways, reduce bias in hiring and create a more inclusive future of work.

SMBs grow at faster rates than larger businesses...

SMEs are a key hiring segment of Australia's economy

The employment impact of small and medium businesses (SMEs) in Australia is significant, with SMEs collectively employing 43% of Australia's workforce — representing 5.5 million employees whose livelihoods depend directly on small and medium enterprises. In 2024, SMEs achieved average headcount growth of 3.7%, compared to just 0.4% for large enterprises. This nine-fold difference underscores the disproportionate role of smaller firms in job creation and their capacity to fuel productivity growth.

...But are challenged by lower fill-rates than larger firms

SMEs face difficulty finding suitable candidates

Australian SMEs are confronting recruitment challenges that reflect broader trends in talent scarcity and skills mismatches. In

financial year 2023, small businesses achieved a 52% vacancy fill rate compared to 65% for large businesses — a 13 percentage point difference. With only about half of job vacancies getting filled, this disadvantage significantly constrains SMB growth potential and reflects the systemic challenges for SMEs in competing for talent.

Skill-first talent pool would increase Australia’s talent pool by 7.7x

A focus on skills helps unlock talent and productivity

Empowering SMEs to adopt an AI-enabled, skills-first approach to building and upskilling teams offers the potential to democratise access to talent, reduce underemployment and drive productivity gains across the economy.

LinkedIn data shows that in Australia, adopting a skills- first approach could expand candidate pools by 7.7 times enabling firms to identify talent that might otherwise be overlooked.

AI addresses fundamental frictions points and can enable skills-based hiring

1. Information Asymmetry: AI analyses vast datasets to assess candidate-job fit beyond credentials, incorporating career trajectory, skill development patterns, and capabilities that human recruiters might miss.

2. Search Costs: Automation of sourcing, screening, and scheduling allows lean SME teams to maintain professional candidate experiences without excessive time investment.

3. Bias Reduction: Skills-based AI evaluation focuses on capabilities over demographics, expanding access for women, older workers, regional talent, and career changers.

4. Workforce Upskilling AI-powered learning platforms deliver personalised training pathways, real-time skills gap identification, and scalable delivery—critical for SMEs without dedicated L&D resources.

Australian businesses are already demonstrating results

Heidi Health successfully scaled from 35 to 200 employees across 8 countries in 18 months using AI-powered recruitment.

G’day Group sources global talent for specialised roles across rural and remote tourist locations, such as the Red Centre and the Kimberley.

Read the full report here.