September 2, 2014

No-Employee Small Business Numbers Grow

The number of no-employee businesses in the United States has gone up. The number is now 20.7 million small businesses with no employees — a record level. That’s according to the latest U.S. Census figures. These are 2006 figures, but they are the most recently available and were just released within the past two weeks.

Here’s the chart I prepared showing the growth of no-employee businesses in the 10-year period from 1997 to 2006, according to official U.S. Census figures:

Nonemployer businesses in United States in 2006

What I find interesting is how fast the growth rate was in the middle part of this century, but the rate of growth of these businesses appears to have slowed recently. For example, between 2002 and 2004, the number of these businesses jumped by roughly 1 million each year. However, between 2005 and 2006, the number increased by just 376,000.

Now, keep in mind what these numbers signify. These are the number of small businesses that do not have any employees.

These small businesses include the self-employed, freelancers, independent contractors, sole proprietorships, family-owned businesses, LLCs, corporations, S-corporations or partnerships.

This group goes by various category names. In fact, the nomenclature is a bit of an awkward circus. The government calls them “nonemployer businesses” — accurate but hard to get your arms around.

For shorthand purposes I’ve often called them single-person businesses or solo businesses (although that’s not strictly correct because they could consist of a husband-wife team, partnership, etc.) — but it seems to convey the idea most of the time. I’ve heard this group of businesses called “personal businesses” — that’s another approach to naming them. Some people call them microbusinesses, although microbusinesses can include businesses with up to 5 employees, depending on how you define them, so that’s not entirely accurate either.

Whatever you want to call these businesses — they are small and have no payroll /no employees (other than the owners themselves). That we know.

These no-employee businesses brought in $970 Billion in revenues in 2006. Almost half of the revenue came from just 3 economic sectors: real estate and rental and leasing ($193 billion); construction ($159 billion); and professional, scientific and technical services ($124 billion). About 7.9 million businesses (38% of the total number) were in these three sectors.

Now, there is another group of small businesses — those small businesses that have fewer than 500 employees. When you add those small businesses with <500 employees (5.9 million) to the number with no employees (20.7 Million) you get a total of small businesses in the United States of nearly 27 Million.

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Anita Campbell - CEO


Anita Campbell Anita Campbell is the Founder and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses, and also serves as CEO of TweakYourBiz.com.

24 Reactions

  1. Great article ; the same pattern occurs here in Europe (no stats yet).

  2. Evolution. Survival of the fittest! People are fighting back against cumbersome economic environments. This may be the only way to gain control over their lives once more.

  3. Well I’m one of these “non-employers” myself. I’m an independent contractor. My client is who would’ve traditionally been my boss. We both win with this set-up and it’s not surprising that our numbers are on the increase. This is why our nation must do something about making health insurance/care more affordable to those who are self-employed. As far as I can see and have experienced, no health insurance is the only major negative to being a one-person business.

  4. There’s a recently released book called “The Obsolete Employee” about how to operate a business with minimal staff, or even no staff at all. I wonder what a world full of independent contracts would be like. My guess is: fast-paced and exciting!

  5. One possible explanation for the growth rates is the state of the overall economy. We see a lot of “reluctant and/or accidental” entrepreneurs in our work. These folks start personal businesses because they don’t have alternatives and go back to traditional employment when they get the chance.

    The 02-04 period was pretty soft with a lot of companies still feeling the after effects of the Internet bust and 9-11. Im not surprised these were strong growth years for personal businesses. But in 05 and 06 traditional hiring picked up and a lot of reluctant entrepreneurs went back to traditional employment. Also, the relatively strong 06 economy kept people traditionally employed. It will be real interesting to see what these numbers are for 07 and 08.

    I do think there is a strong, long term underlying trend towards personal businesses.

  6. Hi Colleen, agreed on the healthcare.

    Did you know that as a self-employed person you can write off 100% of your Federal income taxes for the costs of health insurance premiums and unreimbursed health expenses? That’s a good benefit.

    But health insurance needs to be more readily available without exclusions for pre-existing conditions and at lower premiums.

    – Anita

  7. Hi Steve,

    Yes, that would have been my speculation about the increases and subsequent leveling out — some people being reluctant entrepreneurs who then get employment.

    And I also agree with the strong long-term trend.

    I just wish people would stop dissing this group of entrepreneurs. I heard one commentator dismiss this group as not real businesses — mostly “hobbies.” Hobbies? Usually that’s spoken from someone who has never had any experience running a business and doesn’t have a clue.

    Anita

  8. It would be interesting to see this chart broken down by age and formal education level. In this “Age of Specialization”, we may find where all the “Generalists” are hiding.

  9. Anita makes a very strong case for the economic engine behind non-employee businesses. What strikes me is that no comments thus far address the tax implications lurking for these companies in this very political season. Anita sited, by my count, nine (9) different business organizations, most of which would be taxed at personal rates. The last time I checked my bank statement/401k, I did not consider myself rich. What say you?

  10. It’s too bad there isn’t any dynamic data for nonemployers, the way the BLS puts together business birth and death numbers for employers. Just because somebody returns to a traditional employment situation is not a real reason to assume they shut down their firm. Depending on their situation, they could maintain it as a side business for income patching purposes.

    What I found surprising about the 2006 nonemployer data is the suddenness of the slowdown. Nonemployers increased in number by 4.45% in 2005 and by 1.85% in 2006. I would have expected that slowdown to be a bit more gradual.

    I’ll be interested to see what the overall firm size class data for 2006 looks like. That was a pretty good year for the economy and I’m wondering how many of these nano-businesses transitioned to employer firms that year?

    I like the chart, Anita. :)

  11. I think this is a definite sign of the times. People want the flexibility and freedom of working for themselves at home. I too would like to see a breakdown of stats. Do this numbers include bloggers making money online?

  12. The trend is based on many good reasons, including minimizing taxes, flexible work schedules, fast changing economic conditions (increase the need for contractors) and globalization (reducing employee loyalty).

    Many overcome the health care dilemma by having their spouse work a job that provides health care.

  13. “Evolution. Survival of the fittest! People are fighting back against cumbersome economic environments. This may be the only way to gain control over their lives once more.”

    I have to agree with Yvette’s statement above. This is the way I see it at least. I remember a day when a man could graduate from high school, go to work in a steel mill or for a large corporation like PPG or Westinghouse and earn a living to support a family of four and have the job security to go along with it. His wife didn’t work. Those days are gone and many of my friends that have graduated from college are now scrambling to repay those loans and just earn a living to get by – by bartending, moonlighting, working low paying retail positions and blogging.

    These days, it takes two incomes to support that same family of four – that was supported by one only 30 or 40 years ago.

  14. I’m curious to see the data from before 97. Is this a trend that has always been steadily rising? Was there ever a downturn in no-employee business ownership?

  15. @Scott, Regarding specialists/generalists, yes, that would be an interesting breakdown.

    @Neal, well, there’s so much disinformation floating around on both sides it would be hard to figure out what anyone’s proposal means. I no longer even pay attention to the details of such proposals. Instead, I look at their records.

    – Anita

  16. @Dawn, that’s a good point: how many firms added employees and graduated to the ranks of employer firms? I believe the employer firm data is due out this month, too. We shall soon see. :)

    – Anita

  17. Interesting chart. I think it will rise even higher in the next few years from online and economy wise.

  18. People are finalizing realizing how effective it is to start businesses of their own. I have been stuck in employment for more than 15 years. Well, I am proud to say I’ll be counted as an entrepreneur in the next few days.

  19. What is the overall cost (social security and fees, employer taxes, etc) for an employee in America? The general rule here in Sweden is that it takes about 3 SEK in order to an employee to get 1 SEK.

  20. Hi Martin, That’s an excellent question.

    Generally, hiring an employee adds at least 20% to your costs. But I think it’s even more.

    The reason it’s more is that often the smallest businesses hire independent contractors starting at a few hours a week, and building up from there as the business grows. If business slows, you can cut back on your use of independent contractors. It’s much harder to cut back on using an employee, without the painful act of terminating them altogether.

    So what this means is that businesses have more control of costs through their use of independent contractor services. That usually means spending less. This is crucial in the startup phase of any business.

    Best,
    Anita

  21. What would also be interesting to know is what number of these non-employee firms do other work (for an employer) – in other words, work 2 jobs. This certainly seems to be a growing trend in Canada.

  22. too many people are independent contractors where the company they work for does not want the risk of unemployment, vacation, maternity and workmans comp

  23. Very interesting analysis. More Small Business owners are beginning to realize the full potential of technology today by employing automated systems that generates cash flow for them 24/7 with the most minimal effort.

  24. Interesting….if the 5.9 million business in the US hired just one additional employee the economic crises would be over in a very short time. Food for thought…..

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