The Reality of AI’s Impact on Small Businesses: New Evidence from Gusto Payroll Data

At a glance 

• AI isn’t the “jobs apocalypse” for small businesses. Gusto data shows small businesses with more AI-exposed workforces are seeing revenue and hiring gains – not dramatic job losses. Early evidence points toward growth, not decline.

• This is the first close look at AI’s impact on Main Street. Small businesses employ 45.9% of American workers, yet most AI-and-jobs research has focused on large employers. This study fills that gap using Gusto payroll data from 400,000+ businesses.

• The mix of AI-exposed work has barely changed. Overall AI exposure went from 16.4% in January 2023 to 16.3% in November 2025. The early impact is happening within jobs – through new tools and workflows – not through sweeping changes in who gets hired.

• More AI-exposed businesses are seeing revenue gains. A 10-percentage-point increase in workforce AI exposure predicts roughly 2.2% higher monthly revenue six months later – about $53,800 in additional annual revenue for a typical firm.

• No evidence of overall job losses – in fact, slightly more hiring. Businesses that became more AI-exposed tended to have slightly more employees six months later.

• But younger workers in AI-exposed roles are feeling the squeeze. Small-business employment grew 9.6% since January 2023, but employment in highly AI-exposed occupations grew just 3.4% – with workers ages 22-28 seeing declining headcount while older workers gained.

• Employers appear to be raising the bar for entry-level hiring. As AI automates routine tasks, employers may be favoring experienced workers who can exercise judgment and use AI to create business value.

• A silver lining: this could fuel youth entrepreneurship. Over half of Gen Z workers have a “side hustle,” and Gen Z entrepreneurs lead in AI adoption. Today’s labor market shifts may fuel tomorrow’s entrepreneurial boom.

Executive summary

The bottom line for small businesses. The latest data on small-business hiring from Gusto shows that AI isn’t the “jobs apocalypse” for small companies that some have feared. Our evidence suggests that small businesses with more AI-exposed workforces are seeing revenue and hiring gains – not the dramatic job losses that some have predicted. There’s a learning curve, but early evidence points toward growth, not decline.

That said, the benefits will not likely be evenly distributed. Younger workers entering AI-related fields face a more competitive landscape, while experienced workers appear better positioned to benefit.

Why this study matters. Small businesses account for 99.9% of all U.S. companies and employ 45.9% of American workers. Yet most of the conversation about AI’s impact on jobs has focused on large employers – leaving a big unanswered question for Main Street. This study helps fill that gap using data from Gusto’s payroll platform, which serves over 400,000 small and medium-sized U.S. businesses.

How we measured AI’s relevance to small businesses. We looked at how “AI exposed” each small business is – meaning how much of its work could be significantly helped or potentially performed by AI. Jobs like copywriters, accountants, and customer service representatives are highly AI exposed because AI can assist with many of their core tasks – drafting content, crunching numbers, or answering common questions. Jobs like electricians, plumbers, and dental hygienists are less AI exposed because their work relies heavily on hands-on skills that AI can’t replicate.

We measure AI exposure using a method developed by researchers at OpenAI and the University of Pennsylvania. Each job gets a score from 0% to 100% based on how much AI could speed up its core tasks. We then average across a company’s workforce to see how AI-exposed each business is overall. A higher score doesn’t mean jobs are at risk – it simply means AI tools are relevant to the work being done.

What’s actually changing – and what isn’t. Despite all the buzz about AI transforming the economy, the mix of AI-exposed work at U.S. small businesses has barely budged – going from 16.4% in January 2023 to 16.3% in November 2025. Small businesses overall aren’t suddenly reorganizing around AI. Instead, the early impact seems to be happening within existing jobs, as employees adopt new tools and workflows, rather than through sweeping changes in who gets hired.

Small businesses with more AI-exposed workforces are seeing revenue and hiring gains. We tracked roughly 7,700 small businesses over nearly three years and found a clear pattern: when a business shifts toward more AI-exposed work, revenue tends to grow. A business that increases its workforce’s AI exposure by about 10 percentage points sees roughly 2.2% higher monthly revenue six months later – equivalent to about $53,800 in additional annual revenue for a typical firm in our sample.

Just as importantly, we don’t see AI replacing jobs overall. In fact, businesses that became more AI-exposed tended to have slightly more employees six months later. When AI boosts productivity, some businesses may use those gains to expand – taking on more customers, adding services, or reinvesting into growth. Others may reduce headcount. On average, we find that expansion is more common, which is why our results show a small positive effect on employment.

But younger workers in AI-exposed roles are feeling the squeeze. While the overall picture is positive, a closer look reveals a more complicated story. Hiring for highly AI-exposed roles – like administrative assistants, customer service reps, and software developers – has grown more slowly than hiring overall since early 2023. Total small-business employment grew 9.6% from January 2023 to November 2025, but employment in highly AI-exposed occupations grew just 3.4%.

The slowdown is concentrated among younger, early-career workers. Since early 2023, workers ages 22-28 in highly AI-exposed roles have actually seen declining headcount, while older workers have continued to see gains. This is consistent with other research, and suggests that as AI automates routine tasks, employers may be hiring fewer entry-level workers and favoring experienced employees who can exercise judgment and use AI tools to create business value.

One positive side effect of this trend toward weakening hiring for young AI-exposed workers is that it may further fuel entrepreneurship among this group. Recent studies show that over half of Gen Z workers today have a “side hustle,” and Gen Z entrepreneurs are the most likely to use AI across their business among any age group. In coming years, today’s AI adjustments in the labor market may be fuel for tomorrow’s next entrepreneurial boom.