At SurePayroll, we are big believers in small business resiliency but even we were a little surprised to see that U.S. small businesses managed to hire new employees in November.
To be precise, small businesses managed to increase their staff levels by 0.26% in November. It was the second lowest percentage increase this year, but it extended the run of monthly hiring increases to an impressive twenty-four months.
The SurePayroll Hiring Index, which tracks the size of small businesses, ended the month at 11,249, which is 30 points higher than where the index stood in October.
Year-to-date, small business hiring is up 3.3% nationwide.
That's not bad, given that the Dow Jones Industrial Average plummeted from 13,044 to 8,829 during that same time period.
It's a clear indication that economies are not bad universally. How we view the economy is based on our personal circumstances. Just because the Dow drops off a cliff and there is trouble on Wall Street doesn't mean that the world is ending for the small businesses on Main Street that drive more than half the economy.
To supplement our economic indices, which are based on payroll data for over 20,000 small businesses, we surveyed a much smaller group of business owners (214 business owners surveyed in the final week of November) to ask them how the down economy was impacting their businesses.
Surprisingly, 43% of the business owners who responded to our survey said that the down economy is not negatively impacting their businesses. In fact, 4% said they were actually doing better in the down economy.
We also saw a rebound in optimism in the small business economy.
56% of our small business survey respondents indicated that they are optimistic about the economy.
This was up slightly from our prior survey on October 30, in which 53% of small business owners indicated they were optimistic. It's also a healthy recovery from our survey at the end of September, when only 44% of respondents were optimistic.
Still, optimism is down considerably from our August 2008 survey, in which 79.8% of surveyed business owners indicated they are optimistic about the small business economy. The ranks of the optimistic stood at 63% in July 2008 and at 62% in June 2008.
However, while many small business owners are optimistic, they are also realistic. 57% of business owners say they will cut expenses next year, with marketing and sales being the top item to cut back on and human resources being the second most popular expense item on the chopping block.
While 43% of respondents think the economy will turn around by the end of next year, the remainder think it will take longer for the economy to get back on track. Indeed, 21% predict that the economy will not turn around until after 2010.
Salaries Down In November
Those businesses that are hiring are enjoying a drop in small business salaries. It's a buyer's market for human capital these days.
In fact, salaries declined by 0.39% in November, matching the previous month's percentage decline. 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.
Employees who are getting back into the workforce will be earning less than they might have earned one year ago. This drop in purchasing power certainly won't help the consumer engine that powers much of the economy.
Year-to-date, salaries have dropped 2.6% on a national level. As of the end of November, the average small business salary now stands at $31,768. The SurePayroll Hiring Index is at 1,034, dropping 4 points.
Use of Contractors on the Rise
We continue to chronicle a growing reliance on independent contractors in the small business world.
For folks who are out of work, becoming an independent contractor may be the answer. In uncertain times, employers hedge their bets by bringing on contractors instead of hiring full-time employees. By doing so, they can save on payroll taxes and benefits.
Use of contractors was up 0.8% last month, marking the tenth straight month that we've seen an increase in the use of independent contractors.
The SurePayroll Contractor Index ended November at 3.70%, up from 3.67% in October.
When we say the Contract Index is 3.70%, that means that for every 100 workers engaged by small businesses in November, 3.70 are 1099 independent contractors and 96.30 are W2 employees.
Workers engaged as independent contractors are responsible for their own benefits and burdened with costly self-employment taxes. On the flip side of the same coin, employers who opt for contractors over employees avoid payroll taxes and reduce their benefits costs.
The IRS has strict requirements regarding whether a given worker can be classified as an independent contractor. Businesses that incorrectly classify their workers may be at risk of various fees, fines and penalties.
Regional and State Performance
On a regional basis, we saw hiring and salary trends in November identical to what we saw in October.
The Midwest, Northeast, and South experienced hiring growth in November, whereas the West experienced a contraction in hiring
Monthly hiring gains for these regions were 0.6%, 1.0%, 0.4%, and -0.2% respectively. As it did in October, the Northeast led the country in small business growth in November.
In November, average salaries declined in all regions, except the West. Salary changes for the Midwest, Northeast, South and West were -0.4%, -0.2%, -0.6%, -0.8%, and 0.4% respectively.
On a year-to-date basis, hiring changes for the Midwest, Northeast, South and West now stand at 6.8%, 9.0%, 6.0%, and -0.5% respectively. The West is the only region where hiring is down year-to-date.
Year-to-date salary changes for the Midwest, Northeast, South and West are - -1.8%, -6.7%, -8.6%, and 5.3% respectively. Salaries have dropped the greatest in the South.
As depicted in the graphic below, year-to-date results vary from state to state. The Scorecard comprises data from all 50 states but we pay close attention to states that we have earmarked as "benchmark states": Arizona, California, Colorado, Florida, Illinois, Maryland, Michigan, Minnesota, Nevada, New Jersey, New York, Oregon, Pennsylvania, Texas, Utah and Washington.
Data for our benchmark states are available – just send me an email and let me know if you want the data for your state.
I welcome any and all questions or suggestions regarding our Small Business Scorecard initiative. Feel free to contact me at email@example.com or by phone at (847) 676-8420 ext. 7229.
Questions regarding the SurePayroll Small Business Scorecard can be directed to Lori Bolas or Jennifer Signorini. Lori can be reached at firstname.lastname@example.org or by phone at 847.676.8420 ext. 7248. Jennifer can be reached at email@example.com or by phone at 617.624.3217.