Small Business

What Layoffs Mean for Small Employers


Statistics show that small business hiring is at a standstill, but some companies are finding creative strategies to retain workers for the next upturn

When it comes to hiring, the news has been brutal. In early December, the Bureau of Labor Statistics reported that 533,000 jobs were shed in November. It was the 11th straight month of job losses, pushing the unemployment rate to 6.7%. Adding to the dismal set of numbers, November also marked the largest one-month job loss since December 1974.

As 2008 rolls to a close, headlines continue to trumpet almost daily layoffs, with much of the coverage focused on large corporations. But what is the upshot for small businesses, long considered one of the driving forces of job generation in this country, and its own hiring and retention practices?

Hiring Is Stalled

According to economists and industry observers, small businesses, which tend not to directly follow the slash-and-burn layoff pattern of larger firms, are hardly insulated from the ongoing economic squeeze. The most recent ADP National Employment report, which tracks about 500,000 of its client companies, shows that small businesses dropped 79,000 jobs in November. It was the second consecutive month of job losses for small businesses in six years.

Looking ahead, the National Federation of Independent Businesses (NFIB), a Washington trade group, reported a similarly bleak economic outlook. In its most recent quarterly trends survey of 1,992 members, released in November, the percentage of small business owners who expected to hire within the next three months reached an abysmal zero. William Dunkelberg, NFIB's chief economist and co-author of the survey, says it was the first time since the organization began conducting the survey 35 years ago that hiring numbers had such a negative reading. "This means that [businesses] are not looking to expand the small business sector," says Dunkelberg. "And that is bad news because we are a labor-intensive part of the domestic economy."

Still, despite the overall gloomy forecasts, the downturn also presents hiring opportunities for small businesses. For starters, there is a huge wealth of talented applicants in search of work at the moment. "If you want to hire someone today, it is like buying a car or house," says Dunkelberg. "Employees are cheap, good, and readily available. Nobody is complaining about the quality of applicants. The choices you have now are much improved." For instance, the NFIB's survey also found that 14% of business owners reported that they had positions they were unable to fill, down from 24% in January. "If you are a buyer of labor, this is a buyer's market."

A Buyer's Market

The major job cuts at large corporations also translates into a boon for small business owners who have the resources to hire workers who were perhaps unattainable previously. In November, the Computing Technology Industry Assn., an information technology trade group based in Oakbrook Terrace, Ill., published a survey that showed that 85% of the 772 small and midsize businesses in the U.S., Canada, and Britain that it questioned planned to hire new employees within the next 12 months. And in a slight shift away from the deluge of dreary numbers, SurePayroll, the Glenview (Ill.) payroll administrator that tracks small business hiring trends, reported in November that 214 small businesses that participated in its survey increased their hiring by 0.26% to 3.3%, year-to-date.

In part, that growth reflects how small businesses, unlike large outfits that must contend with such factors as shareholder pressure, can and do deploy a host of strategies when it comes to hiring and retaining employees, especially during tough times. "Most small businesses are owned by a proprietor and they tend not to cut quite so much or so soon in a downturn," says Wharton management professor Peter Cappelli, the author of Talent on Demand, an examination of management talent during uncertain times. "Big companies tend to lay off people sooner and more of them than small businesses, which tend to carry people longer."

Keeping Workforces Intact

One approach that small businesses are using to deal with the downturn is to rely more heavily on independent contractors as a way to keep or increase staff numbers while saving on payroll taxes and benefits. SurePayroll's survey noted a spike in the number of independent contractors and freelancers used by small businesses over the past 10 months. At the same time, small companies are hiring people on a contingency basis or have come up with flexible sabbaticals for employees. Others are instituting job-sharing programs, across-the-board pay cuts, reduced hours, and unpaid vacations in an effort to keep their workforces intact.

Perhaps most important, small companies that find themselves laying off employees are coming up with incentives to keep those people working on an independent basis and allow them to come back into the fold when the economy picks up. "The big companies are reluctant to do that," says Cappelli. "The decisions are driven by top executives who have a quirky view of the world. They think everyone is an independent cowboy and will say, 'Pay me or I will quit, the hell with it, someone else will hire me.'"

"One of the things that big companies are doing that doesn't make a lot of sense is letting people go without any kind of arrangement that makes it possible to grab them back," says Cappelli. "[In] the last couple of downturns we have seen jobless recoveries. The big companies wait a long time before they hire back workers. Small companies can seize on that opportunity. It hooks people in now and lets them hire them full-time later."

Determining ways to keep a workforce in place often has the added bonus of rallying employees around a larger cause, building loyalty within the company. Says Cappelli: "That is not the case when you lose your best workers."

More elements of this special report are available in the related items box on the upper right side of this page.


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