From Freeze to Thaw: The Small-Business Shift Coming in 2026

If you ask most economists about the state of small business in 2025, you’re likely to hear about a lot of struggles: Elevated borrowing costs, cautious hiring, tariff uncertainty, rising health insurance premiums and more. However, if you instead ask the actual data from 400,000+ small businesses themselves – through their payrolls, benefits, hiring decisions, and growth patterns – a different, and more optimistic story emerges. 

At Gusto, our team of economists has spent the past year closely tracking America’s small business economy. And while the economic challenges facing small businesses are real, so is their resilience and opportunity. 

As we look forward to 2026, our economists took stock of the top small-business stories we saw unfold this year, and gathered them into 5 key trends we believe will help reshape the nation’s small-business economy in the coming year.

Trend 1: AI will increasingly become a small-business equalizer

The conventional narrative around AI is that it will (eventually) replace workers. But that may turn out to be mostly a prediction about how AI will impact hiring among large, enterprise companies. For the 99% of U.S. companies that are small businesses – and the roughly ½ of the U.S. workforce employed at small companies – AI is shaping up to be something different: a force multiplier that helps lean teams punch above their weight. 

Our research found that over 60% of small business owners believe AI helps level the playing field with larger competitors. And they’re not doing it through layoffs – 95% of small businesses regularly using generative AI are not cutting headcount. Instead, they’re upskilling employees and expanding what their existing teams can accomplish. 

This year, small businesses hired as many AI-titled employees as in the previous four years combined. That’s not a story about job destruction – it’s a story about capability expansion. In 2026, we expect this trend to accelerate as AI tools become cheaper, easier to use, and more widely adopted by very small businesses.

Trend 2: The new path to wealth is building it yourself 

Building something yourself, rather than working for someone else, has long been part of the American dream. Sometimes, this means creating a business that hires employees. Often, it means doing everything yourself. Over 80% of all U.S. small businesses are now owner-only operations – what we call solopreneurs. And our research shows that this trend isn’t a post-pandemic blip or a gig economy sideshow. It’s a structural shift in how Americans build wealth and careers. 

Gusto data show that solopreneurs today earn 25% more than similarly skilled employees by their fifth year in business, and 77% report profitability in year one. And the demographics of this shift are compelling: women now start nearly half of all new businesses (up from 29% in 2019), and immigrants represent 14% of solopreneurs, double their share among employer businesses. 

In 2026, we expect solopreneurship to be increasingly recognized not as a fallback, but as a first-choice career path – or as a viable path to boost earnings for 50+ workers nearing retirement age.

Trend 3: State mandates will help boost retirement savings for more workers on main street

For decades, small business employees were largely left out of workplace retirement savings. Nearly 70 million Americans still don’t have access to a retirement plan at work – and many of them work for small businesses. 

That’s finally changing. At least 20 states have now enacted legislation requiring employers to offer retirement plans, and the SECURE 2.0 Act provides tax credits of up to $5,000 per year for small businesses that start offering 401(k)s. And these policies work, saving small businesses millions each year.

The math is simple: workers are 15 times more likely to save for retirement when their employer offers a plan. Some industry forecasts suggest that by the end of 2026, nearly 90% of small employers will offer some form of retirement benefit – up from 46% just four years ago. 

This trend marks a tectonic shift in retirement savings and wealth creation among small-business employees, and marks the biggest expansion of retirement coverage since the 401(k) was invented. In 2026 we expect this trend to hit critical mass, leading to much more small-business retirement savings.

Trend 4: Small business hiring will rebound after two years of the “Great Freeze”

The past two years have been tough for economists trying to read small business hiring data. With the federal government shutdown and delayed employment reports from the Bureau of Labor Statistics, private data has been our only guide for the state of the job market this fall. 

Our new Gusto Small Business Jobs Report shows that small business hiring in November 2025 was essentially flat – a modest loss of 2,000 jobs nationally – following October’s revised decline of nearly 38,000 jobs. Over the past 12 months, small businesses have averaged about 40,000 net hires per month, well below the 170,000 monthly pace of the post-pandemic hiring surge of 2021. 

Some economists have called today’s hiring environment the “Great Freeze,” as employers aren’t laying off workers en masse, but also are not hiring. What’s behind this slowdown? There are many theories, but elevated interest rates in the past 2 years have certainly impacted small businesses, by making borrowing costs much more expensive. Similarly, uncertainty around tariffs and AI have made some business owners cautious about expanding their teams. 

Whatever the cause, one thing we see clearly in Gusto data is that the bottom is not falling out of the small business economy: small businesses aren’t collapsing, they’re waiting. With the Federal Reserve now actively moving to cut interest rates and ease business borrowing costs that have weighed on hiring for over two years, we expect small-business hiring to gradually thaw and rebound in 2026. Today, hiring in healthcare and construction in our data are already leading the way – watch for other sectors to rebound as well as borrowing costs come down.

Trend 5: Surging health insurance costs will spark innovation, not abandonment

The numbers on health insurance costs facing small businesses today are painful. Our research shows that premiums for the smallest employers now approach $8,500 per employee per year – the highest of any employer size – and that costs for health premiums facing small companies are up 23% since 2022, far outpacing inflation. In 2026, some industry analysts project another 10-11% increase in those costs, the highest increase in 15 years. 

However, this year we learned that despite these cost increases, small businesses are finding creative ways to keep health coverage for their employees. Gusto data show that the share of small businesses offering health benefits have remained remarkably stable – partly because small business owners have learned that employees with health insurance are 25% less likely to quit in their first year. 

In 2026, we expect to see a story of innovation and adaptation unfold for health benefits among small business owners. That will include adoption of HSA-eligible plans – which has grown from 33% to nearly 48% in just six years – as well as rising interest in level-funded plans and health reimbursement arrangements as small business owners find creative ways to maintain coverage while managing costs. 

Expect to see continued innovation in how small businesses structure health benefits in 2026 – giving more control and flexibility to employees as a way of controlling costs – rather than companies retreating from offering health benefits.

The road ahead for small business in 2026

America’s small business economy enters 2026 at an inflection point. Strong confidence among business owners about their companies today coexists with stubborn economic headwinds and pessimism about the U.S. economy. 

If there’s one lesson our economists took away from Gusto data this year, it’s that small businesses are remarkably good at finding ways to grow and innovate despite whatever barriers the macroeconomy throws at them:

• AI today is making small teams inside companies more capable;

• Solopreneurship is becoming a wealth-building path for more Americans;

• Retirement coverage is expanding for small-business workers;

• Small business hiring is poised to recover as the Fed moves to lower interest rates; and

• Health benefits are evolving rather than scaling back among small businesses, despite cost increases. 

Taken together, our view of the small business economy in 2026 is one of cautious optimism. After all, that’s mostly what the data from hundreds of thousands of small businesses are telling us here at Gusto.