Small businesses are benefiting from the improving economy, and both hiring and access to credit have been picking up in recent years, even though there have been some recent slowdowns.
CBIZ Payroll president Philip Noftsinger tracks small business job creation every month in the CBIZ Small Business Employment Index, which measures whether small business owners are hiring, holding steady, or decreasing their headcounts by surveying over 4,000 companies with 300 or fewer employees. He visited the Accounting Today offices last week to discuss the state of small business employment and how it relates to the recent jobs report from the U.S. Bureau of Labor Statistics.
While the BLS found some softening in the job market last month, the March reading of the CBIZ SBEI showed the first positive gain in 2015, indicating that small businesses are finally catching up on hiring. However, Noftsinger pointed out that the CBIZ index is showing some indications of a slowdown.
“I think the first quarter of ’15 was softer than the first quarter of ’14,” said Noftsinger. “Even though March was a positive trend, it wasn’t as positive as in the previous year, as March ’14.”
Some of the factors that could have held back small business employment include the wintry weather that lasted into March in many parts of the country, along with the strong dollar and the impact of the Affordable Care Act, whose employer mandate kicks in when businesses have 50 or more full-time equivalent employees.
“The ACA is something that we’re talking with all of our clients about right now,” said Noftsinger. “The number one topic for small businesses preparing to file their annual forms, and getting their look-back period straightened out, is figuring out where their employees fall, whether they require coverage or don’t, and the tools around managing that month over month, or contemporaneously as they go through the year. Our small business clients today want to assess their footprint, make sure they’re in compliance, and then get ready to file the forms at the end of the year.”
Noftsinger sees a chance for accountants to talk with their small business clients about the impact of the Affordable Care Act. “It’s a great opportunity to get in front of your clients and talk about what’s going on with the Affordable Care Act because this is the year that the pinch of the regulations starts to hit business owners as they are required to file,” he said. “Last year, you could file voluntarily, but out of our 4,500 payroll clients, none volunteered.”
He believes many small businesses have hit the pause button on hiring, particularly as they approach the 50-employee threshold. “We’re interested to know for the business owner that has to hire their 51st employee what’s going through their heads,” he said. “You get this new potential client. You’re about to sign the deal, and you recognize that you’ve got to hire more people. That changes the cost structure pretty dramatically. We’re just now starting to have the conversation with some of the employers in that spectrum to say, Is it causing you to have a deer in headlights moment where you’re stopping, thinking and reacting rather than chasing an opportunity?’”
Noftsinger pointed out that several years ago, the city of Long Beach, Calif., capped the number of hours for part-time employees to keep them from reaching the 30-hour threshold for being considered full-time. A recent Society of Human Resource Management survey found that 20 percent of firms had made adjustments to either workers’ hours or the number of employees that they had. “That’s a pretty big impact when you talk about the impact of the Affordable Care Act,” said Noftsinger. “And in that same survey, 77 percent indicated that their health care costs had gone up year over year, and 40 percent of those by more than 10 percent. There’s definitely a material impact on hiring trends as it relates to ACA. The question would be then, if you took the ACA out of today’s picture, where would the hiring trend for small businesses be today? I think you’d see something a little more aggressive than what we’re seeing now, although trending-wise I think we’re heading in the right direction.”
On the other hand, he has not yet seen much impact from the push to raise the minimum wage.
“I think small businesses will tend to be late adopters in that vein,” said Noftsinger. “They’re going to keep their wages where they can keep them and retain good talent. Small business owners tend to have more of a family atmosphere in their businesses. In terms of wage levels, it’s less about what you’re doing for me and more about how long you’ve been doing it and what you mean to me as a person.”
However, Noftsinger does believe that wage levels will ultimately rise as the employment picture improves.
“As the labor market firms and we see small businesses start to hire more aggressively, right behind that is going to come wages,” he said. “But I think what’s really interesting is some of the struggles that small businesses are having in filling positions.”
He pointed to a survey by the National Federation of Independent Business that found a major issue for small businesses was finding qualified applicants. “That’s going to create wage growth because you’re fishing in a smaller pool of candidates,” said Noftsinger. However, he is worried that some of the difficulty in hiring may be related to talent dilution among the long-term unemployed who were unable to keep up with technology changes. “I’ll be interested to see if some of that difficulty in hiring is related to a loss of talent, which would translate to higher wages of those who are employed or employable,” he said.
Overall, though, he believes the hiring picture is improving at small businesses. “In terms of small business hiring, the trends are all moving in the right direction,” said Noftsinger. “Large businesses have really carried the BLS in 2014 in terms of the number of people finding new jobs. I think if things continue to trend the way they are now, with small businesses coming into the picture, you could have a real labor recovery in 2015, assuming no macro events trip up that effort.”
One of those macro events could be a rise in interest rates, though Noftsinger anticipates an interest rate hike would not have an immediate impact.
“They’re not going to move enough that I think it’s going to create any type of a credit crisis for small businesses,” said Noftsinger. “They really struggled with credit in the first three years after the crash, and I think things are loosening up for them now. I don’t think they [the Federal Reserve board of governors] will move it enough to have a distinct impact on that. It’s going to be a very careful maneuver, especially the first one. I think the members of the Fed want to move the interest rate, but from a public opinion standpoint, they’re watching the job numbers. They’ve got to make sure the slack is completely out of that, because it can fall back on itself pretty quick.”