The Manager Mass Exodus: How SMBs Are Flattening the Org Chart

Average labor costs in the United States increased by 17% between June 2021 and December 2024, and in 2024 labor costs were a major concern for nearly one-third of small businesses. For many businesses, this has meant slower hiring and reduced growth. However, others have sought to reduce their payrolls in order to control labor costs.  In fact, several of the country’s largest employers have deliberately aimed to reduce the depth of their management layers – a trend called “organizational flattening.” By 2024, this trend extended to small- and medium-sized businesses (SMBs) as well.

People management has historically been a critical rung on many employees’ career ladders – a way to scale their technical knowledge and experience, and to access greater earnings potential. For businesses, it serves the critical function of translating high-level executive directives into actionable workplans for frontline teams to execute. It is not without risks: caught between executives and individual contributors, the direct contributions of people managers can be difficult to pinpoint even when driving progress toward business goals.  

Most public and private labor market data sources do not identify people managers, and in many respects, there is a lack of reliable information about this critical business function. Gusto’s unique SMB payroll and people management data allows unparalleled insight into that magnitude and characteristics of people managers in today’s ever-evolving economy. This report shares first-of-its-kind data on people managers in the SMB workforce.

Key Findings

• The typical manager is about six years older, and earns about $3,460 more per month, than their direct reports. Managers typically earn their role through strong performance and accumulated experience. This highlights the expertise and experience that they bring to the business.
• Industries with more managers tend to have higher worker productivity. Fewer individual contributors per manager may allow managers to take the time to develop their direct reports.
• The number of individual contributors per people manager at SMBs doubled between 2022 and 2024. In 2019 people managers were directly responsible for about 3 direct reports, but by 2024 they were directly responsible for about 6 direct reports.
• Mid-sized companies saw bigger increases in manager scope from 2022 to 2024. Companies with 100-499 employees saw the number of ICs per manager increase by 44%, while companies with 2-9 employees saw the number of ICs per manager increase by 24%.
• Since 2022, SMB hiring of people managers has declined by nearly half, while layoffs have surged three-fold. Recent job cuts seem to have affected people managers most, but the increase in the quit rate among people managers in late 2024 remained elevated.

The typical manager is about six years older, and earns about $3,460 more per month, than their direct reports

People managers and their direct reports differ not only in terms of their responsibilities, but also in terms of their age and compensation. Managers typically earn their position based on increased expertise and experience, and are compensated for it. Between 2019 and 2024 the age difference between the typical manager and their direct report increased by 50% – from 4 years to 6 years – and their pay increased by more than inflation at 38%. 

Managers in 2024 are more experienced, and better compensated, than managers in 2023. These managers are important to the success of the organizations to which they belong, and many spend years in the industry gaining the experience needed to drive organizational progress. This is true even in industries with the youngest managers. For example, the typical manager in the “Accommodation, Food Services, Arts, Entertainment and Recreation” industry is 37 – about eight years older than the individual contributor in the same industry.

Compared to 2019, managers are typically older and more highly compensated in 2024. Managers use their expertise to lead teams to accomplish business goals. However, businesses have been thinning the ranks of managers. This may have long-term implications for their business.

Age and pay gaps between people managers and their direct reports widened from 2019 to 2024, likely as a result of thinning middle manager ranks.

Industries with more managers tend to have higher worker productivity.

Industries with more people managers tend to have fewer direct reports per managers, and tend to have higher productivity. Productivity is measured as total output per hour worked in the industry.

Industries like “Accommodation and food service” and “Administrative and waste management service” had the lowest inflation-adjusted output per hour worked in 2023 ($67 and $75 respectively), and also some of the lowest manager shares in total employment (around 3%). By contrast, two industries with very high output per hour worked – “Utilities” ($590) and “Real estate and rental and leasing” ($576) – had people manager shares of 13% and 9%, respectively. 

More productive industries tend to employ more people managers, though it is unclear from our analysis precisely why. One possibility is that experienced managers help scale success across their teams. Smaller teams give managers more time to mentor and develop employees, supporting long-term success for the individual and business. In recent years, businesses have cut managerial roles while increasing the responsibilities of those who remain. This may reduce managers’ ability to develop their teams and, in turn, constrain business growth.

The number of individual contributors per people manager at SMBs doubled between 2022 and 2024.

Over the past two years, there has been a trend toward far fewer people managers at SMBs.

In 2019, there were roughly 3 to 3.5 individual contributors (ICs) per people manager. In other words, just shy of 25% of workers directly managed at least one of their co-workers. However, most people managers at SMBs had only one to two direct reports. Managers with broader spans of responsibility were much rarer: only about 3.6% of managers in 2019 had three or more direct reports, and about 2.5% had five or more direct reports.

At the start of the Covid-19 pandemic, there was a small drop in the ratio of ICs per people manager – likely as companies laid off or furloughed frontline individual contributor workers while corporate and management employees were largely insulated from the initial pandemic job cuts. 

Following the acute period of the Covid-19 pandemic, the number of ICs per manager increased gradually through 2021 and 2022, but started to increase more sharply in early 2023 as high inflation and interest rates prompted the private sector to focus on cost control. By the third quarter of 2024, there were nearly six individual contributors per manager economy-wide, with roughly 15% in a people manager role. Over this five year period the share of workers who are in a people manager role decreased by 34%.

White collar professional sectors have the fewest ICs per manager 

Information and Professional service industries – often called “white collar” sectors – had the fewest ICs per people manager as of 2024 (4.3), perhaps reflecting the relatively high degree of skill specialization involved in many roles in those sectors. By contrast, in Accommodation, Food Service, Arts, Entertainment and Recreation had the most ICs per people manager, at 11.9. 

This is due, in part, to the greater reliance on part-time workers in the Accommodation and Food Service workforce. The average people manager in Accommodation and Food Service in 2024 managed a largely part-time staff, while part-time workers were relatively rare in “white collar” sectors. When comparing the ratio of full-time ICs per manager, the Information and Professional Services sector had slightly more ICs per manager than in Accommodation and Food Service.      

Blue collar and personal service sectors saw the biggest increases in ICs per manager from 2019 to 2024.

Manager scope – the number of ICs per people manager – increased across all major industry groups between 2019 and 2024, but it increased more for “blue collar” and personal service industries like Transportation and Warehousing, and Education and Health Services. These industries already had high IC-per-manager ratios, and increases since 2019 added more oversight responsibility to the managers. This increased responsibility allowed businesses to hire fewer managers, but might have limited manager ability to understand the work of their teams.

By contrast, trade, information, and professional services industries added less than one IC per manager over the five year sample period. These are industries that already had few ICs reporting to each manager, and moderate to high productivity. When balancing similar labor and supply cost pressure and the critical task of managing their teams, these businesses tended not to abolish many management structures. Businesses in these industries were either already running lean teams, or recognized a value to close manager and IC relationships.

Mid-sized companies saw bigger increases in manager scope from 2022 to 2024.

Larger companies tend to have broader average manager scope, with more individual contributors per people manager. The typical manager at a company with 100 to 499 employees had nearly twice as many direct reports (4.5 in 2022) compared to managers at companies with 2 to 9 employees (2.5 in 2022). 

Since 2022, however, mid-sized companies have seen bigger increases in the share of individual contributors per people manager. By 2024, the number of ICs per manager had increased 44% at companies with 100 to 499 employees, compared to an increase of 24% at companies with 2 to 9 employees. Of course, with fewer managers and fewer ICs in general, smaller companies may already be operating close to their minimum possible number of managers and likely have less capacity to increase manager scope in the first place.  

Since 2022, SMB hiring of people managers has declined by nearly half, while layoffs have surged three-fold.

Hiring and layoff trends for people managers and individual contributors have moved in a similar direction over the past two years, but the shifts have been much bigger in the labor market for people managers. Quits have declined more for individual contributors than for people managers.

Hiring was slower in 2024 than in 2022, but is slower for managers than ICs

January 2022 represented the near mid-point of the “Great Reshuffle,” a period of high labor-mobility in the United States. In October 2021 3% of the U.S. workforce quit their jobs. We use this period as a base, and the historically high hiring during this period means that some slowdown is to be expected. However, by late 2024 hiring for managers was 40% lower than January 2022 levels, while hiring for ICs was only about 11% lower than 2022 levels. Businesses slowed their hiring in 2024, but slowed particularly among managerial roles.

Recent layoffs were primarily driven by managerial roles

Layoffs were historically low from 2022 through late 2024, as businesses were seeking to fill their vacant positions and hold on to employees that they had. However, among roles that were eliminated most were people manager rather than individual contributor. This shows that many businesses were reorganizing during this period, and drives most of the increase in ICs per managers.

Managerial quit rates are now 10% higher than January 2022, suggesting some confidence in the labor market

Quit rates are generally considered to be indicators of how workers feel about the labor market. High quit rates suggest that workers believe they can easily find another job, or that they already have a new job. We find that in late 2024 quit rates for managers were about 10% higher than January 2022, when the labor market was particularly worker-friendly. Meanwhile, non-managers were about 6% less likely to quit their jobs, suggesting that they may have few outside options.

While our analysis can’t say for certain why quit rates for people managers are elevated, there could be a couple different reasons. 

First, some of these managers are leaving the workforce. Since 2022, quits among managers aged 55+ are up about 50%. As these managers left their roles, businesses may have not replaced them – ultimately driving down the number of managers that we document.

For younger managers, the story is less clear. While manager layoffs are predominantly concentrated among managers aged 34-44, we also observe quit rates being up by about 25% since 2022. This means that some of this flattening could be happening from two sources: push and pull. Businesses, who may not want to formally reduce their workforces by terminations, may seek to reduce managerial responsibility in an effort to encourage managers to leave. Additionally, managers may become attractive candidates for open IC and managerial positions as businesses look to expand the expertise to maximize the productivity of incoming staff.

Implications

The early 2020s saw both historic inflation and historic labor market realignment. While consumer spending remained high, businesses were forced to make decisions to limit their costs. For many businesses, that meant flattening their organizations: across all small- and medium-sized businesses 14% of managerial roles were cut. Reducing headcount has implications for the business, as well as those who lost their jobs. 

• Business owners should consider if flattening their organization strengthens the business for the long term. Cutting payrolls is often a way for a business to save money quickly, however, managers typically earn their position based on deep experience and subject matter expertise. Removing these positions can hurt long term growth because of a loss of institutional knowledge within the organization, and larger teams means that managers will have less time to develop their direct reports. Industries with the highest productivity tend to have more managers with smaller teams, perhaps giving them the opportunity to scale their managers’ experience through involvement with their teams.
• Laid off people managers possess technical and leadership expertise, seeking contract work or entrepreneurship may be viable options. New business owners in 2024 were 66% more likely to say that they started their business because of a lost job than those who started a business in 2023. Starting a business can allow subject-matter leaders the ability to be their own boss and work according to their own schedule. Additionally, businesses are becoming more comfortable hiring contractors to do critical tasks. Contracting may provide opportunities to keep skills sharp and stay engaged with the industry while looking for new roles.

Methodology

Data

We compiled monthly employment, payroll and management relationship data for a sample of 8,500 small- and medium-sized businesses (between two and 500 employees) that continuously used Gusto’s payroll and management relationship data products between January 1, 2019 and September 30, 2024. Gusto’s management relationship data product allows payroll administrators to designate an employee’s direct manager for HR actions such as approving a hire or termination, and administering expenses and overtime. 

The table below shows the distribution of the sample companies by total employment across the 69 months. (Some companies move across size categories in different months as their payrolls expand or contract.)

Total employment	Share of sample companies
2 to 9	36%
10 to 19	35%
20 to 49	22%
50 to 99	6%
100 to 499	1.4%

Industry-level data on labor productivity is from the Bureau Labor Statistics (BLS), computed as real output per hour worked.

Definitions

A “people manager” includes any employee who has one or more direct reports in Gusto’s database of within-company reporting relationships. An “individual contributor” has no direct reports.