Report: SMB Optimism Rebounds in March

SurePayroll's March survey found 71 percent of small business respondents indicated they are optimistic about the midmarket economy.

A survey conducted by Glenview, Ill.-based online payroll company SurePayroll found 71 percent of small business respondents indicated they are optimistic about the midmarket economy. Of those who say they are optimistic, 47 percent cited their own cash flows and revenues as their primary reason for being positive.

Twelve percent cited the small business stimulus program as their primary reason for being optimistic. Six percent attributed their growing optimism to the recent performance of the stock market. The remaining optimists cited a variety of other reasons, ranging from long waits at local restaurants to strong faith to a belief that the typical economic cycle is running its course.
In the first quarter of 2009, SurePayroll's hiring index, which is calculated from the payments made by more than 25,000 small businesses that use the company's payroll service, was up 0.8 percent. On an annualized basis, that puts hiring on track to increase 3.4 percent for calendar year 2009.
That good news was tempered by the company's results from the pay index, which found in the prior month, salaries dropped 0.81 percent. That's two consecutive months of salary cuts. In fact, company CEO Michael Alter says one has to go back to December 2004 to find salary declines that exceeded the February 2009 and March 2009 drops. The average small business annual paycheck in the United States is now $31,039. In March 2008, it was $32,579.
However, for business owners, it's a buyers market, Alter says, because employees can be hired for less money, and that drops right to the bottom line for the business. "Businesses that are doing well enough to hire are enjoying higher profits, assuming they are not having to lower their prices to stimulate demand," Alter says.
Alter says the ongoing trend of small businesses relying on fewer full time employees and more on independent contractors continued in March. SurePayroll Contractor Index. As of the end of March 2009, the contractor index stood at 3.88 percent, which means for every 100 workers engaged by small businesses in February, nearly four are 1099 independent contractors and 96 are W-2 employees. Alter notes not only is this is up from 3.82 percent in the prior month; it's also a record high for the contractor index.
"In other words, more than ever before, small business owners are opting to engage an independent contractor rather than hire an employee," says Alter. "In a down economy, this is exactly what we expect to happen; would-be employees don't have much bargaining power in this market, so they cannot demand full-time positions. Instead, they agree to work as independent contractors."
Alter says that's great for employers because the owners pay less in payroll taxes and are not obligated to pay benefits. "However, it puts the contractors in a difficult position, especially if they are new to contracting and end up being surprised by the self-employment taxes they will have to pay," he says.
The survey, SurePayroll's Small Business Scorecard, is taken monthly to evaluate the state of small businesses across the United States. It was completed on March 30 and consisted of 234 respondents randomly selected from the 25,000 small businesses SurePayroll uses to calculate their economic indices.