Irish pay rates are moderating but not fast enough, according to the Small Firms Association.

The IBEC group's annual pay survey says average earnings among employees in small companies rose 5 per cent in 2003, down slightly on the 6 per cent figure in 2002. In 2001, pay rose by 9 per cent. More than half of the 12,562 employees in the firms surveyed earn more than €25,000 per annum.

SFA director Mr Pat Delaney said that despite the slowdown in the rate of growth, average pay in Ireland was now 132 per cent of the European Union average.

"The average 2003 increase of 5 per cent is more than twice the euro-zone average," he said, "underpinning the need for deeper and faster pay moderation.

The SFA surveyed 522 companies with fewer than 50 employees in the manufacturing, distribution, retail and service sectors. It recorded the largest increases in software development, where employees enjoyed double-digit growth and project leaders saw average pay rise 23 per cent as the sector recovered from dramatic falls in remuneration in 2001.

Craft workers have benefited from a shortage of skilled labour with wages rising 19 per cent last year following an 11 per cent increase in 2002.

The services sector saw pay rises fall to 3 per cent last year from 10.9 per cent in 2002 but the SFA fears that the introduction of a 10.2 per cent rise in the minimum wage from yesterday will lead to a rapid rise in the figures this year, putting pressure on inflation in the sector.

Clerical staff secured the lowest rises last year with an average of 1.7 per cent, followed by supervisors (2.5 per cent) and production workers (2.6 per cent).

"A benign budget, an inflation rate below 2 per cent and the loss of 27,000 jobs in 2003 should focus minds on the need for further pay moderation," Mr Delaney said. "The strong evidence of skill shortages will stifle the ability of the economy to expand and make it impossible for Ireland to move up the value chain without adding to inflation."

The survey indicates that small companies as a group offer substantial non-pay benefits for their employees. Outside of pay, 80 per cent have sick pay schemes with 63 per cent offering occupational pension schemes to staff. More than a third of companies (27 per cent) provide health insurance benefits.