Key Findings
- Nearly ⅓ of businesses seek relief on labor costs, increasing talent availability, and improving talent quality. Labor costs, quality, and availability have been a consistent issue for small business owners for the past couple of years. Addressing these policies may support lasting growth for businesses.
- Tax complexity, rates, and regulatory inflation continue to be a top concern for nearly half of small businesses. Small businesses need to stay compliant with multiple levels of regulatory and tax requirements. Modernizing regulations to slow regulatory inflation can help businesses thrive.
- Millennial women want action on childcare costs. In recent years, women have become an increasing share of small business owners while childcare has emerged as a critical issue. Our survey found that 41% of Millennial women entrepreneurs want the new administration to focus on childcare costs.
- Nearly three-quarters of small business owners who offer health insurance to their employees want action on health care costs. Health care costs are the most common policy priority among small businesses that offer health care to their employees. These costs have increased 3.5% annually since 2018, meaning that they’ve become an increasingly large expense for small businesses.
Introduction
Small business owners face many challenges, and understanding their policy priorities is essential for a thriving economy. Gusto’s 2024 State of Small Business survey, conducted in August 2024, asked business owners what policy issues the next administration should address. Now that the new administration is in office, we wanted to highlight those policy issues important for entrepreneurship and small business owners. These insights highlight key areas where policymakers can make a difference in supporting small businesses and fostering economic growth.
Labor costs and availability are a top priority for small business owners
Between December 2020 and December 2024 average total labor costs (including both wages and benefits) have increased by 18%, while certain industries experienced even steeper labor cost increases. For example, total compensation costs for service professions have increased 24% since December 2020. While increased labor costs are a policy priority for many small business owners, the Great Reshuffle of the early 2020s particularly affected the service industry. This increased demand for labor ultimately attributed to the increase in labor costs for small businesses. While nearly 1-in-3 small business owners see labor costs as a policy priority for them, the increased labor costs particularly affected small businesses in service industries – leading nearly half of them to say that this is a policy priority.
Additionally, nearly a third of Goods/Producing businesses (e.g. manufacturing, construction, or similar businesses) want policy makers to focus on labor availability. Businesses in this sector include those in the manufacturing, construction, utility, and transportation industries. Businesses that employ skilled trades workers have been worried about the decline of labor availability for a while, and as existing workers continue to age out of the labor force without being fully replaced by incoming workers this will become an increasingly challenging issue. In recent years, young workers in Generation Z have been increasingly seeking employment in the skilled trades. Policies that increase access to training programs can support these workers, while also training more workers who can fill more roles left open by aging workers.
Finally, more than ⅓ of small businesses that were affected negatively by high interest rates and who sought external financing said that policy makers should focus on labor costs. Shopping for credit and seeking out external financing are key indicators that a small business is trying to grow. As these businesses grow, they are likely to expand their labor force and high labor costs may slow small business growth overall.
Small businesses want action on tax complexity, tax rates, and regulatory complexity
While nearly two-thirds of small businesses want the government to address business tax rates, nearly half of them also want the government to focus on tax complexity and the paperwork and regulations associated with owning a small business. The average small business spends nearly 200 hours per year on compliance related issues, and some of this burden can be alleviated by modernizing some regulatory and paperwork requirements.
Some of this modernization should be small lifts. For example, if a small business makes an error when reporting their Employer Identification Number – a unique number used to identify a business with the government – to the IRS, they are alerted of the error via the IRS sending them a CD-ROM. This adds multiple inefficiencies for resolving the error: first, the small business is unaware until a CD-ROM arrives in the mail and, second, many modern computers lack a CD-ROM drive necessary for reading the data. Additionally, small businesses are often required to register with multiple entities. A simple registration process could ensure that all necessary entities are notified of a new business’s registration so that this only needs to happen one time. Fixing either one of these would give small business owners important time back – time that can be spent running and growing their businesses.
Businesses in some industries, like Goods/Producing businesses (e.g. manufacturing, construction, or similar businesses) and Personal Services, are particularly interested in regulatory relief. Businesses in these industries are responsible for complying with local regulations regarding professional licensure and compliance related issues around hiring employees. By providing opportunities for them to safely and compliantly act within the law, the government may be able to better support entrepreneurship.
Millennial women entrepreneurs want action on child care costs
Nearly 20% of small business owners want the new administration to make progress on the rising cost of childcare. However, this is almost entirely driven by Millennial women entrepreneurs – 41% of whom want the new administration to address child care costs that have increased 22% since January 2020. Since 2019 the share of women entrepreneurs has increased by 51%, and in a typical week, women spend 30% more time than men performing childcare work.
This issue is likely only to become more important in the coming years. Many entrepreneurs start their business in their 30s and 40s, after developing and refining their skills in the labor market. The median Millennial is in their mid-30s, and the average age of somebody having their first child has increased over the past decade. As Millennials continue to start businesses, and women continue to choose entrepreneurship, access to affordable and quality childcare will become an increasingly important way to support increased business development in the United States.
Nearly three-quarters of small businesses that offer health insurance want the next administration to address health insurance costs
Even though small business owners want to offer health insurance to their employees, they are very likely confronted with the rising cost to do so. Health insurance premiums for employers have increased an average of 3.5% a year since 2018. This is perhaps why three-quarters of small business owners who offer health insurance told us that the next administration should address health insurance premiums, compared to only 50% of businesses that offer benefits but do not offer health insurance. Small business owners value a strong compensation package that supports their employees’ wellness – and should be supported in this endeavor.
Conclusion
With a new administration in office, these findings offer valuable insights into the policy priorities of small business owners. By addressing labor costs, tax complexity, regulatory burdens, and childcare affordability, policymakers can create an environment where small businesses can thrive.
Methodology
This blog post reports the thoughts and opinions of small business owners through a survey of over 1,300 respondents conducted by Gusto between August 6 and August 31, 2024. Survey participants were recruited from the universe of Gusto customers who have owned their business since at least July 31, 2023. Survey results were weighted using the national distribution of 2-digit NAICS sector and firm age from the 2022 Annual Business Survey. This survey does not represent Gusto’s preferred policy outcomes or recommendations.
