SMBs Continue Hiring Despite Poor Economy

Despite the souring U.S. economy, a report from SurePayroll shows small and midsize businesses are still hiring.  Although gains were modest (0.26 percent growth in November), it extended the run of monthly hiring increases to 24 months. Year-to-date, small business hiring rose 3.3 percent nationwide.

In the survey, which interviewed 214 small-business owners in the final week of November, 43 percent of the business owners said the down economy is not negatively impacting their businesses. In fact, 4 percent said they were actually doing better in the down economy.

"We also saw a rebound in optimism in the small-business economy," said SurePayroll President Michael Alter. "Fifty-six percent of our small-business survey respondents indicated that they are optimistic about the economy."

Alter said this figure was up slightly from a prior survey conducted on Oct. 30, in which 53 percent of small-business owners indicated they were optimistic. Despite the small bump in optimism, SMB owners are still far less sunny in their economic outlook than they were in August, when 79.8 percent of surveyed SMBs felt good about the economy.

 
"However, while many small-business owners are optimistic, they are also realistic," Alter said. A full 57 percent of business owners say they will cut expenses next year, the report says. Marketing and sales face budget cuts first, followed by human resource cutbacks. Although many SMB owners think the economy will recover, 57 percent think it will take longer than one year, and 21 percent said they felt the economy will not be back on track until 2010.

Employed, but for Less

While SMBs are reporting employment gains, however small, the salaries connected to those positions are shrinking. SurePayroll's survey found salaries declined by 0.39 percent in November, which matches the previous month's percentage decline. "It's a buyer's market for human capital these days," Alter said. "We had anticipated a slowdown in salary declines, but higher unemployment clearly is allowing employers to hire talent for less money. There are plenty of folks to choose from these days."

Alter said the situation is simply a supply-and-demand issue. "If you had asked this question a year ago, the biggest problem SMBs would have had would be finding good, qualified employees," he said. "Now you have a lot of people who are being laid off from huge companies." Inflation also plays a roll in the number of people seeking work, Alter said. Families that used to depend on one working member are now requiring an extra breadwinner to make ends meet.
"On top of all of this, there is a large pool of people who were getting closer to retirement, and now they have to stay in the work force longer," Alter said. "These people are driving up the supply of workers, which drives down prices."  

Year-to-date, SMB salaries have dropped 2.6 percent on a national level, to $31,768. Alter said lower salaries, which result in less consumer purchasing power, certainly won't help the consumer engine that powers much of the economy. In fact, the survey found SMBs are fostering a growing reliance on independent contractors.

"In uncertain times, employers hedge their bets by bringing on contractors instead of hiring full-time employees," Alter said. "By doing so, they can save on payroll taxes and benefits." SMBs save money by employing independent contractors because workers engaged as independent contractors are responsible for their own benefits and bear the burden of costly self-employment taxes. At the same time, SMBs that employ contractors avoid payroll taxes and reduce their benefits costs.

Uncertain Times

On the macro level, Alter said he agrees with President-elect Barack Obama, who said on Sunday's "Meet the Press" that the economic downturn will deepen. "At some point SMBs finally have to stop hiring," he said. "Even if SMBs tomorrow turned around and started to hire, they couldn't hire fast enough to keep up with the number of people getting laid off."

Although the nation's economic woes might allow SMBs to strike a better bargain with new hires, market volatility and what is likely to be a long-lasting, arduous turnaround period will produce the kind of economic uncertainly that could accelerate the economy's downward spiral.

"Small business owners will say, -I know how to plan for a downturn, and I know how to plan for an upturn, but I don't know how to plan for uncertainly,'" Alter said. "For an SMB owner today, you have to take a look at the world and make a bet. You will see this get worse before it turns."