Employee turnover hits a three-year low, but falling real wages are quietly eroding workforce engagement
Australian employee turnover has dropped to its lowest level in three years as workers prioritise job security over mobility, even as wages fail to keep pace with rising inflation, according to new research from the Australian HR Institute (AHRI).
The June Quarter 2026 Australian Work Outlook report, based on a survey of 606 senior business decision-makers and human resources leaders conducted by YouGov between 5–11 April 2026, shows the annual employee turnover rate has fallen to 13.5 per cent – down from 15.2 per cent in December 2025, a decline of more than 11 per cent in six months. This is the lowest turnover rate recorded since AHRI launched the survey in May 2023.
Sarah McCann-Bartlett, CEO of the Australian HR Institute in Melbourne, said the data captures an inflection point in the Australian labour market.
"The subdued activity suggests that employers and employees are taking stock of the uncertain economic environment and hunkering down," McCann-Bartlett said. "Australian workers may be choosing stability over movement, but stability is not the same as job satisfaction."
Wages falling behind inflation
Despite the apparent calm, a critical pressure point is building beneath the surface. Employers surveyed by AHRI expect to deliver average pay increases of just 3.1 per cent over the next 12 months – down from 3.3 per cent in the March 2026 quarter – against headline inflation of 4.2 per cent. The Reserve Bank of Australia (RBA) has forecast inflation could peak at 4.8 per cent by mid-2026.
That gap between what workers are being paid and what it costs to live represents a real decline in purchasing power for most Australian employees. As HRD Australia has reported, Australian employees are already under significant financial pressure from three RBA rate rises and surging fuel costs in 2026, compressing household budgets from multiple directions simultaneously.
"When pay expectations are running below inflation and employees' choices are limited, this creates real risks for engagement, productivity and wellbeing," McCann-Bartlett said.
The divergence between sectors is also sharpening. Private sector employers expect to lift wages by 3.3 per cent in the year to April 2027, while public sector expectations have fallen to 2.4 per cent – a reversal of the pattern seen in recent years. This comes against a backdrop of minimum wage pressures, with unions pushing for a 6 per cent rise to protect lower-paid workers from further real wage erosion.
Employers choosing reskilling over redundancy
Rather than cutting headcount, Australian employers are responding to economic and cost pressures by investing in existing staff. According to the AHRI report, 39 per cent of organisations are reskilling or retraining employees, 32 per cent are reorganising teams or job roles, and 31 per cent are redeploying staff internally.
Redundancy intentions remain low at 19 per cent – unchanged from the previous quarter and among the lowest levels recorded since the survey began.
McCann-Bartlett said the approach makes strategic sense, but warned it must be accompanied by transparency.
"While it is encouraging that employers are responding to cost pressures by reskilling and redeploying rather than making cuts, this must sit alongside honest communication with employees about pay and other non-financial benefits."
She noted the role of artificial intelligence in accelerating these workforce shifts. "As AI is adopted by organisations, if you look at the changes AI is going to make to the skills we need and how our workforce is structured – yes, we're going to have to continue to reskill and reorganise in order to adapt to a faster pace of AI adoption." This pattern of simultaneous reskilling, reorganisation and redundancy has been identified by AHRI as the growing '5Rs effect' reshaping HR strategy across Australian workplaces.
AHRI's Net Employment Intentions Index – which measures the balance between employers planning to grow versus reduce their workforce – held steady at +38 for the second consecutive quarter, down from +48 in September and December 2025. Recruitment intentions edged up slightly to 61 per cent of organisations, but remain well below the 71 per cent recorded in December 2025.
Job demands remain the top psychosocial risk
The June quarter 2026 report devoted its focus section to psychosocial hazards – aspects of work that have the potential to cause psychological harm – an area of growing legislative scrutiny across Australian workplaces.
Job demands and workload pressures remain the leading cause of psychosocial complaints for the second consecutive year, cited by 23 per cent of employers. Poor workplace relationships (22 per cent), lack of role clarity (19 per cent) and poor support (17 per cent) round out the top four risk factors.
McCann-Bartlett flagged the interaction between current workforce strategies and psychosocial risk as a critical issue for HR leaders.
"Against the backdrop of muted hiring activity and reduced reliance on contractors, a key risk for employers is that job demands and workload pressures increase in the months ahead. This reinforces why employers must remain committed to improving employee engagement and developing internal talent."
The engagement dimension carries broader urgency. Global employee engagement dropped to its lowest level since 2020 – hitting just 20 per cent in 2025 – according to Gallup's 2026 State of the Global Workplace report, with managers identified as the strongest driver of that decline. Australian HR leaders are navigating this deterioration at the same moment internal workloads are rising, making the collapse in global employee engagement a direct warning for local people leaders.
There are some positive signs. The proportion of organisations reporting no psychosocial claims or complaints in the past 12 months rose from 20 per cent in 2024 to 30 per cent in 2026, and complaints related to remote or isolated work fell from 17 per cent to 13 per cent – an indication that flexible and hybrid working arrangements have stabilised.
However, most organisations report being only "somewhat prepared" to manage psychosocial hazards. Interventions tend to concentrate on flexible working (33 per cent) and work-life balance initiatives (32 per cent) rather than addressing underlying drivers such as job design, workload management and leadership capability. Just 21 per cent of organisations report making changes to work organisation or job design to improve psychosocial safety.
