Kathleen Hays
CNNfn
July 8, 2004

KATHLEEN HAYS, CNNfn ANCHOR, CNN MONEY MORNING: New claims for unemployment benefits tumbled last week to 310,000. Now the Labor Department saying there was a statistical, a seasonal adjustment issue here. So we're taking those with a grain of salt. But, beyond that, there's more good news this week, small businesses are adding workers. The bad news, though, is small businesses salaries are falling.

We're joined now by Michael Alter, who is president of SurePayroll in Chicago. Welcome to the show.

MICHAEL ALTER, PRESIDENT, SUREPAYROLL: Thank you.

HAYS: You have launched a new index. So tell us, first of all, about SurePayroll, what you do and what is in this index you started recently?

ALTER: Great. Be happy to. SurePayroll is a leading national provider of payroll outsourcing services exclusively for small businesses. That is, firms that have between one and 100 employees. The index that we have started is the SurePayroll Index, which is a great indicator of the health and the trend in hiring among small businesses. We have over 12,000 small business clients nationwide.

We've aggregated their data into the small business scorecard, which is a series of metrics that gives us some indication of the health of the U.S. small business economy which, as you know, represents 98 percent of all businesses and about half of all employed in the U.S. workforce.

HAYS: So, Michael, your 12,000 businesses, I have no idea what share of all small businesses that is -- is that 5 percent, 10 percent? What portion, what percentage of the small business universe would that be?

ALTER: Small business is a huge market with over 8 million small businesses. But it's certainly a representative sample in that we represent clients across all 50 states, in all industries, in all sizes from 1 to 100 employees.

HAYS: OK. And, again, the caveat, of course, is that you just started the index. There's no track record, no history. It's not seasonally adjusted. But with that in mind, tell us what you saw in your second quarter number compared to your first quarter number.

ALTER: Be happy to. We just started initially publishing the index this quarter. We have been tracking it since the beginning of the year. And with a base of 10,000 at the beginning of the year, what we saw has happen over the last two quarters is that the index has jumped from 10,000 to 10,488, a rise of almost 5 percent. And what that is, is a 5 percent increase in the hiring among our client base in terms of the headcount. And we've also seen strong growth from the first quarter to the second quarter continuing at around 2.20 percent growth.

HAYS: But the growth in the second quarter not quite strong as in the first quarter? Is that also what you found?

ALTER: It's only 0.1 point difference, so I don t think that's as material. The very interesting thing is that, while we've seen hiring continue to grow, what we also saw was the average salary or the average paycheck drop slightly by almost 1.7 percent.

And in talking to our customer -- we talked to these small businesses all day long -- what we learned is that there's really two factors behind that slight drop while small business continue to hire. Those are really, number one, simple supply and demand. What our small business owners are telling us out there is that while they're looking to hire, there are so many qualified people out in the workforce that if somebody won't accept their job at the salary they're offering, they can go on to the next person. And so they feel very comfortable in continuing to hire while keeping salaries somewhat flat.

And the second piece of it is also, as they've started to hire in the last two quarters, they've had a decline in the amount of overtime that they're paying as they now have more workers on staff and, therefore, don't need to pay as much overtime. And so those two things are what we believe are the factors in talking to our small business clients across the country as to what's driving the increase in hiring coupled with that slight decline in salaries.

HAYS: As we wrap this up, can you tell us what you see looking ahead?

ALTER: We see, from talking to our customers, continued hiring among small businesses. I think the real question depends on what will happen with salaries. Will wages start to inch up or will they remain as they are? One of the very interesting facts is that in this most recent quarter, in the overall SurePayroll small business score card, what we've seen is hiring pick-up among what you call W-2 or full-time employees, as well as in 1099 or contractors.

And what that means is, the way small businesses hire, the first thing they do is they get orders, then they add on contractors. And then when they get comfortable that those orders are continuing, then they bring on the full-time employees. And that's the trend we're seeing, which is a very different trend than how large businesses show their recovery, which is they tend to hire before sales start.

HAYS: OK. Well, Michael Alter, congratulations on your new index. We ll look forward to tracking it with you in the future. Thank you for joining us on CNN MONEY MORNING today.

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