Business Salaries Still Declining, Index Finds

SurePayroll's monthly hiring index shows a bump up in new hires last month, but salaries continue to decline and business optimism took a big dip in July.

A report from online payroll service SurePayroll found that while hiring rose 1.7 percent among small businesses in the month of July, salaries, on the other hand, have consistently been trending in the opposite direction. Year to date, the average small business salary has dropped 5.1 percent, according to the SurePayroll Pay Index, which is an economic index of the average salary paid by a U.S. small business.

The index now stands at 976, down eight points from the company's June reading of 984. That's a one-month drop of 0.8 percent, exactly the same decline seen in SurePayroll's June small business scorecard. SurePayroll president Michael Alter said lower salaries make it easier for business owners to hire new employees but unfortunately, that benefit comes at a price to workers who are entering the workforce or returning to the workforce as they must accept lower paychecks than they would have received in prior years.

Year to date, salaries have dropped 5.1 percent. The average small business annual paycheck in the U.S. is now $29,995. One year ago, in July 2008, it was $32,290. The last time the average small business paycheck dipped under $30,000 was March 2006. "Since we began the Small Business Scorecard in January 2004, the lowest average small business paycheck was $28,589 in August 2005," Alter noted.

For July 2009, SurePayroll saw a substantial decrease in business owner optimism levels, however. In response to a survey the company conducted at the end of July, only 56 percent of responding small business owners indicated that they were optimistic about the small business economy. "That represents a big drop in optimism from June 2009 when 79 percent of respondents indicated they were optimistic about the small business economy," Alter said.

In May 2009, 73 percent of respondents were optimistic. "It may seem odd that optimism is dropping at the same time that there are many reports about how the economy appears to have turned the corner towards recovery," Alter said. "However, many respondents indicated that their pessimism is powered primarily by increased government spending and concerns about the costs of health care reform. It seems that many small businesses want the cure but they don't like the medicine that has been prescribed."

Based on the July SurePayroll Small Business Scorecard results, Alter said he continues to see small business owners relying on independent contractors. The economic index the company generates to track this trend - the SurePayroll Contractor Index - represents the percentage of employed individuals who are working as independent contractors. "Hiring an independent contractor is an attractive option for a small business owner because there is no need to offer contractors benefits or to file and pay payroll taxes for contractors," he said.

As of the end of July 2009, the Contractor Index now stands at 4.13 percent, up from 4.06 percent at the end of June. This means that for every 100 workers engaged by small businesses in July, 4.13 are 1099 independent contractors and 95.87 are W-2 employees. This month's level for the index, 4.13 percent, is the high point for the Contractor Index since SurePayroll started publishing the Small Business Scorecard in January 2004, and it's the 18th straight month in which the Contractor Index has increased.