Small Business Hiring Down, Paychecks Up — and the Meaning?

Would you like to know whether other small business owners are hiring and whether they are giving pay increases, so you can benchmark your business’s performance?

SurePayroll has some useful data giving almost real-time feedback about how U.S. small businesses are faring, based on their payrolls.

According to SurePayroll’s November 2006 Small Business Scorecard, small business hiring is down, but individual paycheck levels are up.

Small business hiring is down

Nationally the number of employees in small businesses is down by slightly less than half a percent (0.4%) since the beginning of 2006.

If you look at the index score that SurePayroll calculates for hiring levels, there is a definite, although gradual, downward trend since the beginning of the year, as this chart shows:

Small Business Scorecard

While the number is down, keep in mind that a half percentage point drop is fairly small. Some might call that “statistically insignificant,” meaning that the number of employees remains essentially flat.

Also, it’s important to keep in mind that the hiring index started in January 2004 at 10,000. At the November index of 10, 427 we are still ahead of conditions nearly 3 years ago, despite the recent decline.

Paychecks are higher

The other important piece of data in the SurePayroll Scorecard is the size of employee paychecks. Small business paychecks have increased 7.4% since January 2006. According to the SurePayroll website, “The average small business salary across the nation now stands at an annualized rate of $31,288.”

Whether this increase in salaries is good news or bad news depends on how you look at it. On the one hand, higher paychecks could be bad news because they suggest a tightening labor market where small businesses have to pay more to attract talent, thereby increasing costs.

But consider the positive side. Small businesses are doing well enough to afford to give pay increases — pay increases that exceed the 3% to 5% increases that have become standard in many industries.

Overall conclusion

This valuable data suggests to me that small businesses are holding their own. While economic conditions may not be at the most favorable levels we’ve ever seen and the trend suggests a gradual cooling off, on the other hand, I don’t see conditions as particularly negative, either. We’re still better off than January 2004 when the Scorecard first started tracking these payroll statistics.

I think we’ve experienced exactly what some prognosticators predicted for 2006 and beyond: a tightening labor market where it costs more to hire and retain good people. Yet the good news in this mix is that even though small businesses are not expanding their staffs, they are doing well enough, apparently, to pay more to those they do employ. And that’s good news for employees of small businesses, too.

About the Scorecard

I had a chance to talk by phone not long ago with SurePayroll’s President, Michael Alter, about the Scorecard. The Scorecard is based on actual payroll data for 18,000 small businesses. This is not a survey based on just a few hundred responses as many surveys are. And since it is actual data, it is a reliable snapshot of actual conditions.

What I also like about SurePayroll’s Scorecard is that it speaks to the smaller end of the small business market, which is where most small businesses fall into. According to Mr. Alter, “Roughly 80% of our customers have 9 or fewer employees, and many have just one employee.” So many surveys and statistical measures focus on large employers, despite the fact that the smallest businesses make up the majority of businesses in the United States.

Mr. Alter said the Scorecard got started in January 2004. “It came about through a benchmark process that customers requested,” he said. SurePayroll then expanded the Scorecard to make the results public.

You can find the Small Business Scorecard, including results for the past year, on the SurePayroll website.


Anita Campbell Anita Campbell is the Founder, CEO 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.

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