The Impact of US Small Business Employment Rates

By: | April 24th, 2023

The U.S. is home to approximately 31.7 million small businesses, accounting for 99.9% of all firms. Unsurprisingly given those numbers, small businesses significantly impact national employment rates, both in terms of direct and indirect employment.

What Is a Small Business?

Despite having an enormous impact on the national economy, the definition of a small business is a bit vague. The SBA defines any company with less than 500 employees as a small business, but 80% of small businesses have no employees at all. In addition, 10% of the U.S. labor force is self-employed.

Most small businesses are owned by Boomers and Gen X, with millennials only accounting for 7% of small business ownership. Women own 43.2% of small businesses, with minorities owning 19.4%.

Which Industries Are Most Favorable for Small Business Growth?

The Intuit QuickBooks Small Business Index indicates small businesses have the highest growth potential in national resources, leisure and hospitality, education and health services, wholesale trade, and construction.

How Many Employees Do Small Businesses Employ?

If you’re wondering why small businesses are important to the U.S. economy, consider these facts: small businesses employ 46.4% of the U.S. workforce — approximately 61.7 million people. The number is even more impressive when you consider 80% of small businesses are one-person operations: 20% of all small businesses employ almost half of the workforce.

According to J. P. Morgan Chase, 5% of the U.S. workforce is employed at a small business with 1-4 employees, 12.5%  are employed by businesses with 5-10 employees on their small business payroll, 16.7% work for businesses with 20-99 employees, and 14% work for companies with 100-499 employees.

How Much Does The Average Small Business Employee Make?

While the average small business employee makes $45,857 annually, salaries fluctuate depending on the small business’ payroll:

  • Employees at businesses with 1-4 employees earn an average of $49,467
  • Businesses with 5-19 employees pay annual salaries of approximately $39,658
  • Employees at small businesses employing 20-99 people have average salaries of $3,231
  • Businesses with 100-499 staff pay employees approximately $52,544

What Is The Salary of The Average Small Business Owner?

Small business owners earn between $30,000 to $130,000 according to payscale, with an average wage of $60,151, only 3% above the national average.

What Impact Do Small Businesses Have on Job Creation?

Small businesses created 12.9 million jobs over the last 25 years, according to the Small Business Administration. By comparison, businesses with 500 or more employees only created 6.7 million jobs.

The 2020 pandemic highlights the impact of small businesses on job creation. The U.S. lost 9.1 million jobs in the first half of 2020. By the second quarter of 2021, small businesses created 5.5 million jobs, which the SBA notes was a “60% recovery from the pandemic-era decline.”

How Many Small Businesses Offer Remote Work to Employees?

Many larger companies were quick to demand employees return to the office after the end of the 2020 pandemic, which caused friction with employees used to the freedom of working at home. In contrast, remote work is the norm for most small businesses, with 57% continuing to offer work-from-home arrangements. Partially this may be due to the financial constraints of a small business: an employee who works remotely from their home office saves the company money on equipment and utilities. Another factor may be work-life balance — remote work appeals to many employees and may play a role in long-term retention in small businesses.

How Do Small Businesses Impact Local Employment Rates?

Small business accounts for almost 45% of the U.S. GDP and impacts both national and local economies. The needs of small businesses impact local accountants, marketers, and suppliers, increasing demand for their services and allowing them to maintain or increase their own staff.

Small businesses are also more likely to hire locally, which can contribute to a stronger sense of community and stimulate the local economy. When small businesses hire locally, the money paid in salaries and wages often stays in the community, leading to increased spending and growth.

How Much Does Labor Cost Small Businesses?

Labor costs are consistent across the board for companies with employees, averaging 70%. Small businesses are not immune to these costs but are more likely to run into payroll difficulties as they cannot always afford an in-house accountant. Small business accounting software helps smaller companies handle payroll and other accounting requirements effectively.

Small businesses impact U.S. employment rates out of proportion to business size. By mentoring and investing in small businesses, lenders and business leaders encourage more entrepreneurs to take the plunge into the small business world and strengthen one of the most solid foundations supporting the U.S. economy.


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