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Small Businesses Face a New Challenge: Hiring Workers

Luke Pardue Economist, Gusto 

Small businesses were hit hard by the pandemic, forcing millions to make excruciating decisions from reduced wages to layoffs to shutting down. Nearly 16 months later, as vaccinations become more widespread and businesses are able to reopen, many are confronting a new challenge—hiring employees so they can jump start their business again. According to the National Federation of Independent Business, 48% of small businesses reported posting job openings in May that went unfilled. To attract workers, small businesses are pulling out all the stops—from offering financial incentives to flexible workplaces to free food. 

Boom in Business

Recent economic indicators have shown that, as businesses seek to rebound from the recent recession, they need to work hard to both attract and retain workers. The most recent Job Openings and Labor Turnover Survey (JOLTS) report estimates that there were 9.3 million job openings in April 2021, and the rate of workers quitting their job has risen to a record high since record-keeping began in 2001. Growth has been fastest in the hardest-hit services sector—like restaurants, hotels, salons & spas, retail, and entertainment—where, according to the Bureau of Labor Statistics (BLS) data, these sectors are now leading in job creation adding 292,000 jobs to the Leisure & Hospitality industry in May 2021. 

The competition for these workers has been fierce, and one way businesses are competing is by handing out spot bonuses. Indeed, Gusto’s payroll data shows a record jump in bonuses in service-sector jobs. As presented in Figure 1, in May 2021, 10.5% of all paychecks issued contained a bonus. That prevalence of bonuses on Gusto’s platform has never been seen in a non-December month, and it is a 35% increase from April 2021 and 50% from 2020.

Figure 1: Percentage of Paychecks With a Bonus

Not only are more employees receiving bonuses, but the average size of these bonuses has shifted up in recent months as well. Figure 2 charts the average size of bonuses, by month. Between February and May of 2021, the average size of a bonus was $571, up from an average of $299 in February to May of 2019.

Figure 2: Average Bonus Payment

Figure 2 plots the average amount of bonuses over the past three and half years (Jan 2018-May 2021). Between February-May 2019, bonuses averaged $299, while between February-May 2021, bonuses averaged $567.

Wages on the Rise

Beyond bonuses, employers across all industries are also luring workers to their firms with higher hourly wages, which have seen significant increases in recent months—in both the personal services sector (including Tourism, Food & Beverage, Arts & Entertainment, Sports & Recreation, Salon & Spa, Other Personal Services) and professional services sector (Technology, Accounting, Finance, Consulting, Legal, Other Professional Services). 

Gusto data shows since the start of the year (Jan. 2021), wages in the personal services industry have risen from $16.20 to $18.70, while wages in the professional services industry have risen from $21.30 to $23.10. In Leisure & Hospitality, one of the hardest-hit industries, the average wage in May 2021 in the industry was $18.70 per hour, an increase of 43% compared to May 2020. 

Getting Creative with Benefits

Employers can compete for workers by offering one-time bonuses or by raising hourly wages, but many small businesses remain cash-strapped as they emerge from a historic recession. Unable to compete with the wage increases offered by larger corporations, small business owners instead are standing out from the competition by getting creative with their benefit offerings that won’t require them to break the bank. 

In addition to offering benefits such as flexible work schedules, free meals or discounted products, small business owners have increasingly turned to tools like Gusto Wallet, a new financial health app for anyone paid with Gusto. Gusto Wallet is completely free to the employer and free to use by the employee. During this pandemic, use of quick-pay apps among workers increased 300%, according to the Society for Human Resource Management, and these products often come with high fees or predatory interest rates attached. Workers are returning to the labor force more committed than ever to managing their financial health, and Gusto Wallet offers an attractive option for employees to meet unexpected expenses without diving further into debt.  

Conclusion

The data is clear: As the U.S. economy enters recovery mode, small businesses are eager to hire, but must work hard to attract and retain talent. They are competing on every margin—offering one-time bonuses, wage increases, and workplace benefits. For how long this continues, however—as states roll off unemployment insurance supplements and as childcare centers, camps, and schools reopen—is less clear.

About Gusto

Gusto enables more than 100,000 small businesses across the United States to take care of their teams, with full-service payroll, benefits, compliance, expert HR, and more. This report analyzes leading indicators and changes to employment at small- and medium-sized businesses through May 2021. The findings reported represent data points with meaningful sample sizes based on the distribution of Gusto’s customers. 

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Updated: September 9, 2021

Luke Pardue
Luke Pardue Luke Pardue is an Economist at Gusto, researching how public policies help small businesses and their workers thrive. He is a PhD Candidate in Economics at the University of Maryland, where he studies the effects of government programs on disadvantaged populations’ housing and labor market outcomes. Luke currently lives in Washington, D.C.

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