Small Businesses Adding Jobs But Salaries Falling

The August report from online payroll SurePayroll, which tracks small to medium-size businesses (SMBs), said that while small businesses are continuing to add employees, albeit slowly, salaries continue to drop– year to date, the average small business salary has fallen six percent.

Year-to-date small business hiring, as measured by changes in the average size of a U.S. small business, is up 1.9 percent. The analysis is based on aggregated and anonymous payroll data for tens of thousands of U.S. small businesses, coupled with surveys of a smaller subset of those companies.

August also represented what SurePayroll president Michael Alter called “a strong rebound” in business owner optimism. After Scorecard optimism survey results in July, which found 56 percent of responding small business owners indicating they were optimistic about the small business economy (a big drop in optimism from June 2009 when the figure stood at 79 percent), August results show 71 percent of respondents expressed owner optimism.

Alter said July pessimism was powered largely by concerns about the costs of health care reform. Many of those concerns seem to have dissipated, now that more facts are on the table and many inaccurate beliefs regarding health care reform have been dispelled. “In response to a survey we conducted at the end of July, only 56 percent of responding small business owners indicated that they were optimistic about the small business economy,” he said. “It also helps that the stock market posted very healthy gains in August, and that a number of other economic indicators suggest that the economy has turned the corner.”

The company’s SurePayroll Hiring Index rose 21 points to 11,489 in August, up from 11,468 at the end of July. (The Hiring Index tracks the total workforce for a small business, including employees and contractors.) This represents a 0.2 percent month-over-month increase in hiring. As of August, the Hiring Index is up 1.9 percent for the year, or an annualized growth rate of 2.9 percent.

However, Alter said if you are about to get a job at a small business, expect to make less than you would have if you got the job months ago. The SurePayroll Pay Index now stands at 967, down nine points from the July reading of 976. That translates to a 0.9 percent month-over-month drop in average small business salaries. Year to date, salaries have dropped six percent, equivalent to an annualized salary drop of 8.8 percent.

In addition to tracking hiring and salary trends, SurePayroll tracks whether companies are becoming more reliant on independent contractors. The SurePayroll Contractor Index, which tracks this trend, represents the percentage of employed individuals who are working as independent contractors.

As of the end of August 2009, the Contractor Index now stands at 4.2 percent, up from 4.13 percent at the end of July. Alter said this means that for every 100 workers engaged by small businesses in August, 4.2 are 1099 independent contractors and 95.8 are W-2 employees. “Rising use of independent contractors is consistent with economic turnaround,” he explained. “There’s business to be done, but firms are hesitant to hire full-time workers when part-time contractors might suffice.”