“Many small business owners continue to face big challenges hiring and retaining employees,” Holly Wade, executive director of the NFIB Research Center, told Yahoo Money.
Small companies, those with fewer than 250 employees, accounted for nearly 80% of the 10.3 million job openings in the most recent report by the U.S. Bureau of Labor Statistics, according to an analysis by Aneta Markowska, chief financial economist at Jefferies. The small-business sector has 3 million more job openings than before the pandemic, versus large companies, which have about 250,000 more.
“We are a very small retail operation selling handcrafted Native American art and prior to the pandemic, it was a challenge to find qualified employees who had intangible qualities such as an appreciation and understanding of art and the creative process,” John Krena, owner of Four Winds Gallery in Pittsburgh, Pa, told Yahoo Money. “But I always had a file of applications from people desiring to work at the gallery. In today’s environment, that is non-existent.”
Competing for new hires with larger companies is difficult
While small firms might be able to compete with big corporations for new workers on wages, they can’t go head to head on total compensation, including benefits such as employer-provided retirement plans, and health insurance.
Consider this: Annual premiums for employer-sponsored family health coverage reached $22,463 this year, according to the most recent KFF survey of 2,188 non-federal public and private firms. But workers at small firms contributed on average $7,556 a year to those premiums, or $2,000 more than versus employees of large firms who paid $5,580.
Three in ten workers (31%) of covered workers at small firms are in a plan where they must contribute more than half of the premium for family coverage, compared to 7% of covered workers at large firms. And the average deductible for covered workers is much higher at small firms than large firms ($2,543 vs. $1,493).
To woo new workers, owners are increasing wages for applicants, Wade said. That’s what Bergen Giordani, co-founder with her daughter Morgan Giordani Reamer of One Hot Cookie in Youngstown, Ohio, did.
“Currently our starting wages are on average $2 higher per hour than in 2020,” Giordani told Yahoo Money. “Even with this higher starting wage, we’re having trouble retaining new workers. In the past three months, we have hired 4 new full-time hourly employees and only one remains.”
Many small business operators have also “lowered the minimum qualifications for positions, dedicating time and resources on internal training for new employees, are offering more full-time staff overtime and increasing the hours of part-time staff where possible,” Wade said.
Keeping the faith
Hiring troubles aside, small business owners are hopeful about the new year.
Two-thirds of small business owners with less than 100 employees expect revenue to increase next year, while more than half plan to expand their business, according to a recent report from Bank of America.Just over three-quarters said their business is prepared to survive a recession.
“Small business owners are still grappling with economic pressures from inflation and supply chain issues, on top of an anticipated recession, which could impact the cost of their goods and services as well as their hiring and expansion plans in 2023,” Sharon Miller, president, small business, head of specialty banking and lending at Bank of America, told Yahoo Money. “However, most entrepreneurs are confident their business is equipped to survive a recession and are optimistic about their 2023 business prospects.”
They’re “planning new marketing initiatives, implementing tech upgrades and spending their time and energy tackling the operational challenges within their control amidst ongoing market pressures,” she added.
Giordani is one of those bullish small business operators.
“We were fortunate to have very strong revenues in 2021 and 2022, and I’m optimistic about the upcoming year,” she said. “In the past two years, we made significant investments in capacity by purchasing a warehouse and building inventory of our non-perishable goods to take advantage of price breaks and eliminate supply chain issues as best we can. Because of this inventory we will decrease expenses in 2023.”
Plus, One Hot Cookie has several sales channels now. In 2020, the mother-daughter duo shuttered two of their three cookie stores, ratcheted up online sales, and began to operate mobile units to go to birthday parties and weddings.
To stay afloat, they also took advantage of the federal government’s pandemic Paycheck Protection Program for small business owners, getting around $100,000 combined in the first and second rounds of funding. Plus, they received a $10,000 state grant and a $10,000 county grant.
“Next year, we will heavily market our mobile units and online sales as we see the most immediate opportunities in those sectors,” Giordani said. “I don’t know that we will expand in 2023 but we will be exploring options for possible out-of-market expansion in 2024.”
And she hopes to hire more workers, like many of her small business peers.
Seven in 10 small business owners plan to hire new employees in 2023, according to a Bank of America pulse survey conducted in late November of a national sample of 534 U.S. small business owners with annual revenue between $100,000 and $5 million and employing between two and 99 employees.
Of firms planning to hire in 2023, nearly 6 in 10 plan to offer higher wages for prospective employees than they did in 2022, and to help retain workers, half plan to raise wages for current employees.
That would be sweet, if it works.
Kerry is a Senior Reporter and Columnist at Yahoo Money. Follow her on Twitter @kerryhannon
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