September 21, 2014

Small Business Employee Compensation and Benefits Lag

small business employee compensation

Employee compensation at small establishments lags behind that at larger businesses, Bureau of Labor Statistics (BLS) data (PDF) reveals. Not only do businesses spend less on wages and benefits at smaller concerns, but also expenditures on employee compensation have been growing more slowly at smaller establishments.

While not every establishment, or business unit operating at a single location as government statistical agencies defines them, represents an independent firm. The vast majority of establishments are single location businesses. Therefore, observers often use data on small establishments to track what is going on in the small business world.

Smaller Establishments Pay Lower Salaries

At private sector establishments with fewer than 50 workers, wage and salary costs per hour were $17.28 in June 2013; at establishments with 50 to 99 workers, they were $19.13; at concerns with 100 to 499 workers they were $20.56; and at establishments with 500 or more workers, they were $28.29.

Smaller Establishments Spend Less on Employee Benefits

The cost of employee benefits at private sector establishments with fewer than 50 workers was $5.81 per hour worked in June 2013, compared with $7.51 at establishments with 50 to 99 employees, $9.20 for establishments with 100 to 499 workers, and $14.86 for establishments with 500 or more people, BLS estimates show.

Larger Establishments Provide a Greater Share of Employee Compensation

At establishments with between 1 and 49 workers, benefits accounted for 25.2 percent of total compensation in June of this year. They amounted to 28.2 percent of total compensation at establishments with between 50 and 99 employees, 30.9 percent at locations with between 100 to 499 workers, and 34.4 percent at establishments with 500 or more workers.

Two key benefits – health insurance and retirement plans – account for a larger slice of employee compensation at bigger establishments than smaller ones. In June 2013, health care coverage took to:

  • 6.2 percent of total compensation at establishments with fewer than 50 employees.
  • 7.3 percent at locations with between 50 and 99 employees.
  • 8.6 percent at concerns with between 100 and 499 employees.
  • 8.9 percent at establishments with 500 or more employees.

This June, retirement plans accounted for:

  • 2.2 percent of total compensation at establishments with fewer than 50 employees.
  • 3.2 percent at establishments with between 50 and 99 employees.
  • 4.0 percent at establishments with between 100 and 499 employees.
  • 5.2 percent at establishments with 500 or more employees.

Employee Compensation has Been Growing More Slowly at Smaller Establishments

BLS figures show that total compensation increased only 1.8 percent between 1990 and 2013 at establishments with fewer than 100 workers, when measured in inflation-adjusted terms. At establishments with between 100 and 499 workers, and establishments with 500 or more workers, over the same period, real total compensation rose 19.7 and 19.8 percent, respectively.

Wage stagnation has been the norm at smaller establishments. Between 1990 and 2013, real wages increased only 0.9 percent at locations with fewer than 100 employees. At establishments with between 100 and 499 workers, they went up 14.1 percent, while at concerns with 500 or more employees, they rose 13.2 percent.

Retirement benefits have grown more slowly at smaller establishments. When measured in inflation-adjusted terms, the per employee cost of retirement savings grew only 1.3 percent between 1990 and 2013 at establishments with fewer than 100 people, versus 64.2 percent at locations with between 100 and 499 workers and 62.7 percent at concerns with 500 or more workers.

Spending on employee health coverage has grown more slowly at smaller establishments. Real spending on employee health coverage rose 58 percent at establishments with 500 or more workers between 1990 and 2013, and 68 percent at concerns with 100 to 499 employees. By contrast, spending on employee health coverage at establishments with fewer than 100 employees increased only 32 percent over the same period.

In short, smaller establishments pay less and provide lesser benefits than larger establishments. Moreover, this pay and benefit gap has widened in recent years. Our elected officials should take these facts into consideration when designing policies that affect small business employment.

Small Versus Big Photo via Shutterstock

7 Comments ▼

Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

7 Reactions

  1. Scott,

    Indeed, I agree that small biz are not known as offering a great compensation and benefits for employees. Not that we don’t want to, but we don’t have that much resources. And with the laws and regulations which seem to limit small biz’ even more, I can see the gap in employee compensation in big biz vs. small biz will be wider in the near future.

    My 2 cents.

  2. I think any attempt to pigeonhole have a small businesses a is defined it is a waste of time. I saw a statistic that said that well over half of all “small businesses” have only one employee (i.e. the owner) so using statistics from all small businesses will completely skew the results as many owners of such businesses are far more likely to cut their own pay if it means paying their bills or saving money for reinvestment purposes whereas a 3 to 5 person company can’t do that without risking losing one or more employees

  3. So does this mean that people should just get employed in bigger establishments? My take is that I don’t think it has to be that way. As for my case, working for a smaller establishment actually frees up most of my time. My time is flexible and the organization is not as toxic or political. So in the end, it is just a matter of where you fit in.

  4. Smaller establishments generally pay less and provide lesser benefits than larger establishments. This is for the majority of the employed. As in my case, I do enjoy some perks and commissions with benefits put in while working in a small company.

  5. I would have to disagree. We own a small business (7 employees including my husband and I) and we are in a location with a very small unemployment rate. In order to get and keep good quality employees we find we have to pay better then average wages for a small business in our area. Plus we offer health insurance, life insurance, sick days, vacation days, 7 paid holidays, uniform expense and a 3% matching simple retirement plan. And we still continue to struggle to find good help.

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