Small Firms Suffer Downturn, but Hiring Continues

Entrepreneurs by nature are an optimistic group, but many of them seem to have misplaced their rose-colored glasses last year.

Forty-three percent of the self-employed and micro business owners say this is the worst economic downturn that they have ever experienced and 25 percent say it's the first slump they've experienced with their current business, according to a study by the National Association for the Self-Employed.

Seventeen percent responded that they might scale back the purchase of inventory or equipment, while 14 percent are considering dipping into personal savings to bolster their business. Eleven percent may cut staff or refrain from hiring new staff and 10 percent might lower prices of products or services.

Meanwhile, payroll processor SurePayroll reports that despite the economic woes, small businesses increased in size on average during 2008, but salaries declined.

SurePayroll said small business hiring was up 3.5 percent last year, although hiring increases declined with each passing month of the year. For example, October month-over-month growth was 0.28 percent while November dipped to 0.26 percent and December clocked in at 0.22 percent.

The company found that small business salaries declined 3.1 percent, with the average small business salary in the United States at about $31,610.

While that's not good news for many small business employees, it is for the many small business owners who can pay less for talent now than a year ago, said the SurePayroll report. Additionally, the data show that contractor hiring increased 8.3 percent from 2007 -- the biggest yearly increase since 2004.

"In times of uncertainty, small businesses will hire human capital on a plug-and-play basis," said the report. This is partly a way to avoid the longer-term liability of an extra full-timer on the payroll but it's also a way to lower expenses because contractors don't require payroll taxes and benefits.

By Sharon McLoone |  January 13, 2009; 11:10 AM ET Data Points , Economy Watch
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