Small Business Owners Earn 1.4x More Than Employees, But Often Delay Their Own Raises

By: Tom Bowen and Nich Tremper

Key findings

• Small business owners earn about 1.4 times more than their employees. This premium accounts for management, financial risk, and the day-to-day expertise of small business owners. 

• Owner pay surged after 2019 but has largely stalled since 2023. After rapid gains during the post-pandemic recovery, typical owner wages have flattened as inflation, tighter credit, and demand shifts have increased pressure on small firms.

• Industry matters far more than firm size for owner pay. Owners in knowledge-based sectors earn several times more than those in consumer-facing industries, while growing from 2 to 50 employees is associated with only small changes in owner pay

Introduction

Small business owners play multiple roles in their firms, from frontline worker to manager to risk-bearer, and their pay reflects that complexity. Using payroll records from 2019 to 2025, this report measures how much owners pay themselves and how it changed. Focusing on regular wages enables clear comparisons between owners and employees across industries and firm sizes. 

Owner Pay: A Plateau After a Period of Rapid Gains 

In 2025, the median, or typical, small business owner paid themselves $4,800 per month, about $57,600 per year, in cash wages. This is the steady paycheck owners draw from their business, separate from any additional income they may receive through profit distributions or other non-payroll earnings. Our analysis focuses on this payroll-based compensation to capture the part of owner income that most closely resembles what their employees receive: a predictable monthly wage.

As the chart below shows, owner pay rose quickly from 2019 to 2022—up 17%, from $4,100 to $4,800. Those gains align with the broad economic rebound growth, economic recovery following the Covid-19 pandemic in 2020, elevated new business formation, and strong consumer spending that supported higher revenues for many small firms.

However, beginning in 2023, that momentum stalled. Median owner pay has remained essentially flat through 2025, a pause that mirrors the growing economic pressures facing small businesses, including higher inflation, shifting demand patterns, and tighter credit conditions that have made cash-flow management more difficult.

Owner Pay Varies Widely Across Industries

Owner pay varies widely across industries, reflecting differences in productivity, skill requirements, and capital intensity. Owners in the Information sector earn the most, with a median monthly pay of $7,400 (about $89,000 per year), while owners in Food Services earn the least, with a median income of about $2,000 per month.

This pattern holds broadly across the economy. Knowledge-based sectors, such as Information and Professional Services, sit at the top of the distribution, with median owner earnings roughly two to four times higher for owners in these industries compared to owners in consumer-facing industries like Retail or Food Services.

However, despite relatively low pay in many consumer-facing industries, these sectors have seen some of the strongest growth in owner compensation in recent years. Food Services has experienced the fastest growth since 2019, with owner pay rising 42% over the period. The Recreation industry has also seen substantial gains of 28% over the period. These increases align with post-pandemic expansions in both sectors, which saw elevated business formation and strong consumer demand.

Bigger Firms Don’t Necessarily Mean Higher Owner Pay

A common assumption is that owner pay rises steadily as firms grow. However, the data does not support this. Median owner pay ranges only from $4,600 to $5,100 across businesses with 2 to 50 employees, a remarkably narrow band given the differences in scale.

This pattern suggests several things. First, small business owners often pay themselves a “market wage” comparable to what they could earn in their profession, regardless of firm size. Second, headcount growth does not automatically translate into higher owner pay. And third, many owners may prioritize reinvestment, employee pay, or overall business stability over increasing their own salary as the firm expands.

The typical small business owner earns 40% more than their staff

Small business owners start their business because they are experts in what they do. When these business owners hire staff, they often become managers, administrators, and executives on top of doing the day-to-day work of their business. Their typical pay of $4,800 is about 1.4 times the average monthly pay of their entire staff.

This higher pay makes sense for small business owners, they’re often not only workers on their business but they’re also key financers of the business and are the primary risk takers for the business. This means that they set salaries that compensate them for both the work they do and the increased financial risk associated with running the business.

Small business owner pay premium differed across industries

Industries with the largest increases in owner pay from 2019 to 2025 were also those facing the strongest demand and the tightest labor markets. Education and Other Services stand out as clear examples.

In these sectors, rising demand meant more work flowing to small businesses at the same time that hiring became difficult or prohibitively expensive. As a result, many owners may have absorbed that extra workload themselves rather than expanding payroll. Owner pay rose in part to compensate for this increased day-to-day labor.

At the same time, tight labor markets pushed wages up across the economy. Because small business owners often set their own pay relative to the market value of their labor, broader wage growth also translated into higher owner compensation. Together, increased workloads and rising market wages help explain why owner pay premiums grew most in these high-demand, labor-constrained industries.

Owners of real estate businesses saw a decrease in their pay compared to employee pay from 2019 to 2023

Few industries have experienced as much volatility over the past half-decade as real estate, making it a useful case study for how small business owners adjust their own pay relative to their employees’.

During the pandemic-era boom of 2020 and 2021, low interest rates and shifting housing demand fueled strong activity. In 2020, real estate owners raised employee pay more than their own—employee wages rose 6% relative to 2019, compared with a 4% increase in owner pay. As the market remained strong into 2021, owners became more comfortable increasing their own compensation.

That pattern reversed once interest rates began rising in 2022. As conditions tightened, owners pulled back their own pay first. Median owner pay fell by 4% in 2023 and another 1% in 2024, even as employee pay continued to rise modestly. While hiring slowed, employee wages were not cut; instead, owners absorbed the adjustment themselves.

Small business owners, who are simultaneously workers, managers, and the primary risk-bearers of their firms, often delay raises for themselves when times are good and pull back their own pay when conditions worsen. In practice, owner pay is frequently the most flexible part of the budget, adjusting as business conditions change and helping keep employee pay steadier during periods of uncertainty. For owners, this underscores that managing volatility often happens through their own compensation. Owner compensation is an important, if imperfect, tool for navigating ups and downs while keeping the business stable.

Methodology

For this report we looked at the average employee and business owner wages as recorded in payroll data from 2019-2025. We limit our sample only to businesses for which we could confidently identify a business owner, and define the salary for the average employee at each business to be the mean of all W2 employees not identified to be an owner for that given year. We define the salary of the average owner at each business to be the mean of all employees identified as owners who received income via regular payroll for that given year. We do not see owner draws or other transfers from banking or personal accounts.