Small Business Data Shows Mixed Bag

New economic data show a mixed bag for small business growth, but small firms continue to motor ahead in a sluggish economy.

They are making more use of independent contractors as a means to avoid offering pricey benefits packages to new employees, according to new data from payroll service firm SurePayroll.

The SurePayroll Contractor Index ended June at 3.54 percent, up from 3.52 percent in May and 3.5 percent in April. This is the fifth straight month that small businesses have relied more on independent contractors. The index ended last year at 3.45 percent.

The June data means that for every 100 workers engaged by small businesses that month, 3.54 are 1099 independent contractors and 96.46 are W-2 employees, said SurePayroll President Michael Alter, who added that the data show small business owners are not confident about future business activity and so are hesitant to add a full-time employee to the payroll.

Additionally, the supply of available contractors has increased thanks to a 5.5 percent national unemployment rate, he noted.

"Hiring full-time employees is like getting married. Hiring a contractor is like dating," said Alter. Businesses don't have to pay payroll taxes and benefits to contractors, saving employers money.

Small businesses are faring better than big businesses in the current economic climate, show May data from payroll firm ADP. Large businesses with more than 500 employees saw employment decline by 18,000 workers in May, while medium-sized businesses with between 50 and 499 workers shed 3,000 jobs. Conversely, employment among small businesses, defined as those with fewer than 50 workers, increased by 61,000 during the month.

The services sector added employees while workers in the goods-producing sector dropped, showing the 18th consecutive monthly decline. Manufacturing employment fell 26,000 in May, marking the 21st consecutive monthly drop.

The National Federation of Independent Business released data last week showing that there was a decline in employment reported by small business owners in June. Its data showed a drop of 0.5 workers per firm. Six percent of the owners increased employment by an average of 4.3 workers per firm, and 18 percent reduced employment an average of 4.6 workers per firm, substantially worse than April and May.

NFIB chief economist William Dunkelberg said: "Not seasonally adjusted, more owners plan to cut employment than planned to increase jobs in finance, insurance and real estate and in the wholesale trades." Job creation plans are most prevalent in professional services, manufacturing and construction, which is seasonally strong now.

Dunkelberg's data also showed that more firms plan to increase cuts in the south Atlantic states and the North Central states, an area sometimes referred to as the "auto belt." The mid-Atlantic states are also weak. Strongest growth was seen among states west of the Mississippi River.

The group also released survey results revealing that inflation was the top concern of small businesses, the first time that topic made it to No. 1 in the NFIB survey since January 1981.

Meanwhile, payroll firm PayCycle said yesterday that its data show that 47 percent of small business owners say they are taking action to reduce payroll through layoffs, not giving raises or offering days off instead of pay increases. Additionally, the group's survey showed that 43 percent of small business owners are choosing to cut back on vacations this year, citing the economy as the primary reason.

By Sharon McLoone |  July 8, 2008; 11:03 AM ET Data Points
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The state of our economy is certainly proving to be positive for independent consultants, freelancers, and those who are aspiring to be so! The trend is definitely shifting as telecommuting is becoming more and more popular with the price of gas and employees are seeking to break out on their own because they actually feel more secure working for themselves than for someone else. With this trend comes the emergence of the umbrella corporation, like MBO Partners, http://www.mbopartners , which acts as an employer of record for freelancers and independent consultants, offering them access to nearly all the benefits of working for a corporation while allowing them complete freedom to choose their clients, projects and work environment. I see this new way of work becoming the norm, rather than the exception.

Posted by: Angela | July 12, 2008 4:24 PM

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