Small Business Pipeline
July 11, 2004

Small businesses grew bigger but paychecks shrank in the second quarter, according to SurePayroll, a payroll provider based in Skokie, Ill.

Based on the number of employees and contractors paid, small businesses grew 2.2%, according to SurePayroll, which aggregates data for more than 10,000 customers on a quarterly basis. This means that the pace of recovery slowed slightly; in the prior quarter-over-quarter numbers, from Q4 2003 to Q1 2004, small business headcount had grown at the slightly higher rate of 2.28%.

The news comes just days after the U.S. Labor Department reported that U.S. employers added 112,000 workers to payrolls in June and factory employment fell for the first time in five months. Despite insistence by President Bush on Friday that the United States is "witnessing steady growth," most economists were disappointed in the numbers. Still, said Bush, "We don't need boom or bust type growth; we want just steady, consistent growth, so that our fellow citizens will be able to find a job, and so that the small business sector will feel confident about expanding."

However, the average small-business paycheck size in Q2 2004 fell 1.7% from the year-ago quarter, according to SurePayroll.

Why? An oversupply of workers, said Michael Alter, president of SurePayroll. "New employees simply cannot demand high salaries and, more often than not, must settle for what's offered to them," he said. "That's because there's somebody waiting in line right behind them with identical or better qualifications who is willing to work for less money."

Still, the growth of both contracted and salaried employees in the second quarter is encouraging, said Alter. And even though the quality of jobs has dipped, the long-range picture is encouraging, he said. "If the economy continues to recover, the excess capacity in the market will start to disappear and my expectation is that we will see better-quality jobs and small business salaries increasing in future months."

Small business size increased in the majority of states across the nation, with 29 of 50 states reporting an increase in headcount from Q1 2004 to Q2 2004. Thirty-five of 50 states increased the use of contractors as a percentage of total headcount from Q1 2004 to Q2 2004, suggesting that small businesses continued to leverage independent contractors to address their business needs. As for small business paychecks, the average paycheck increased in 29 of 50 states when comparing year-over-year paycheck amounts from Q2 2003 to Q2 2004, according to SurePayroll.

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