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Want Small Businesses to Start Hiring Again? Here's How.

Updated on February 11, 2014
KeithTax profile image

Keith Schroeder writes The Wealthy Accountant blog with 30 years experience in the tax field. He is the tax adviser of Mr. Money Mustache an

Small business has traditionally been the driver of employment growth since World War II. When small business people hire, the economy grows. Large businesses also hire, but spend significant sums on equipment and downsize their workforce at every opportunity. Large businesses have also outsourced large portions of their workforce to other countries.

In theUnited Stateswe are suffering the slowest employment growth out of a recession since 1946. The expected driver of job growth, small business, is absent so far in this anemic recovery. Several impediments discourage small businesses from hiring, preventing a real economic recovery from taking hold.

As I work with small business owners daily, I see recurrent facts that hold them back from hiring. I also reflect on my own businesses and what keeps me from hiring additional staff. In this article I want to share my findings on what needs to happen for business owners to commit to the large expense of additional employees. If we are all lucky, someone in government will read this and take the "real" steps needed to spark hiring, and hence, economic growth. By understanding how the business owner thinks, it will better position you to get a job.

End Job Hunting Headaches

Finding your dream job can happen if you understand how employers think.
Finding your dream job can happen if you understand how employers think.

Costs: Hiring additional employees is expensive and employers are reluctant to commit to the heavy burden if they are uncertain about the future. In my office it costs around $75,000 in wages and benefits to hire one full-time employee. Throw in another $5,000 to $10,000 in expense to find a qualified employee, train them, run background checks, and get them registered with the IRS before they can file one tax return. This does not include the expense of sifting through all the applications, resumes, and interviews.

Once an employee is hired more expenses follow fast and furious. Employers pay Worker's Compensation insurance, unemployment insurance federal and state, FICA taxes, and benefits. Unless you are in the accounting field you also have a larger bill at the accountant for the additional payroll processing.

Costs are a major concern for employers, but not an overriding factor. If the employer thinks their investment in training a new employee will be profitable for an extended period of time, they hire. When the horizon is clouded, employers hold back, sometimes even turning down new business or pass on expansion to avoid the added overhead of more employees. A cloudy horizon is the main reason small businesses hold off hiring more staff when work is available. As I will discuss later, regulation and government manipulation cloud the horizon, forcing potential employers to wait and see before hiring.

My business clients have hired more people over the last three years, increasing their total payroll. However, these businesses would have hired even more people if things were more clear. I discuss business activity with my clients on a regular basis. Without exception, every business client I have has seen an increase in business activity recently. Most of these employers are delaying as long as possible any additional employment, however. Uncertainties in taxation, regulation, and government manipulation make the decision to hire a difficult one. Laying off a new employee once trained is a massive waste of resources.

Taxation: Taxes play a large roll in business decisions. The continued threat of taxing S corporations and large tax law changes around Christmas each year make tax planning more a guessing game than planning. Taxing S corporations would create double taxes for most small businesses. Even a micro business could see their taxes increase $5,000 or more if this change is enacted. Most employers can not afford that kind of tax increase and additional employees. Until Congress and the White House make it clear this will not happen job growth will remain slow in the small business sector. This one tax law change could lead to 10% or more of all small businesses closing. Probably more. Most businesses do not have the ability to survive that kind of financial body blow.

Small businesses need to plan. When Congress waits until the last second to pass a tax law each year, businesses are forced to make decisions based on guessing what the tax code will read come January 1. When Congress waits to clarify the tax environment, employers wait to hire. Retroactive tax changes, where a tax law is passed with an effective date in the past, are even worse. Small tweaks are one thing, but massive changes to the Code each year are getting old. When I know what I owe the IRS, I'll decide if I can afford another employee. Until then, regardless of need, no new hires. And most other businesses feel the same whether they say it in so many words or not. They feel the stress and will take steps toward self-preservation. What else would you expect?

The tax code has also become overwhelming and burdensome. Taxes touch every part of the employer’s life. You can get a credit for hiring people, but few know about it. Employers also know that once the credit is gone the expenses still remain, so we need clarity before we commit, regardless of the candy Congress dangles in front of us.

I joke in my office that 29 years ago I started a tax business. Then I became the welfare office with all the new credits, from child tax credit to the earned income credit. Now I will also become the Social Services building with the new health care bill working its way into the economy. The government saves money by pushing additional work on the tax preparers without any compensation to the people doing the work. Soon, tax preparers will need to ask even more questions about your health insurance before completing a tax return. How can accountants charge for work that will only cost their clients money without any benefit? Business owners will spend more time on taxes in the near future instead of building their business and hiring people to get the work done.

Once upon a time if your income was low, you didn't file a tax return. Now, you show up at the tax preparer’s office and get thousands in credits (a refund) without paying a penny in tax. Nearly half of Americans pay no income tax. Half of Americans have no vested interest in the success of the nation. Half give nothing to the common good, only take. I agree taxes need to be very low for folks with low income. But a negative tax rate? Really? Does theUnited Statesreally need to pay people just for being here?

How to Find a Job During a Recession

Regulation: No matter what your field of business, you are in the financial planning, medical, and insurance business. No matter your business, you better be good at financial planning since you provide retirement services to employees. You better be good at medicine and medicine insurance, too, since you provide health insurance to employees or will be required to shortly. When you should be spending time improving your business so you can hire more employees, you are tucked away in the side office trying to figure out what all the terminology in investments and medicine mean. Many employers don't hire more people because they don't need more work in the insurance and financial planning field.

Imagine, Monday morning you arrive at work and your boss tells you where you can bank. You can bank elsewhere if you like, but will face a penalty for doing so. How would you feel? Would you give your employer a piece of your mind? Maybe quit your job? I argue banking is less important than your family’s health or your entire retirement. And your employer tells you which doctors you can see, which hospitals you can get care from, and which investments you can choose from for your retirement plan. Your boss might be a plumber, but he makes a large part of your retirement/financial planning and medical decisions for you. He is an expert on these issues. Right? It is beyond me why unions don't strike demanding employers give their members the cash to buy their own benefits rather than the one-size-fits-all plan they now get.

Employers don't want to be in the medical business unless they are a hospital. Why hire more people when it includes all these distractions. All an electrical contractor wants to do is electrical work. He prefers the insurance, medical, and financial experts handle their work on their own without his involvement.

Government Manipulation: Government manipulation comes in two forms: taxation and regulation. Both forms of manipulation force employers big and small to wait for clarity before adding employees.

A short time ago the tax code provided an $8,000 tax credit for certain home buyers. The government manipulation of the real estate markets had two negative effects. First, home prices were about $8,000 higher as people paid more for a home due to the credit. When the credit disappeared, home prices fell by an amount near the credit’s value. Second, people now will wait to buy a home. You never know when the government will offer another incentive. This one simple tax credit, I believe, has extended the demise of the real estate market longer than real estate sales and prices would have suffered without the manipulation.

Employers are forced to wait on hiring more people (or put in a new machine instead) due to government manipulation. Why, as an employer, should you take on the risks of more employment when the government can change the rules at a whim, leaving you holding the bag? The government needs to stop paying tax dollars for big business to turn food (corn) into gas (ethanol). Due to this manipulation we now have energy and food inflation. We can all drive less, but how much less do you want to eat? Farmers know corn prices could drop in an instant if government manipulation ends. Why take the plunge when the risks are so high and an all-or-none proposition?

Some regulation is needed. Many of the new tax incentives and regulation has business owners sitting on their hands. Without clarity, investment decisions are on hold. And employees are an investment decision. A long-term one.

How long have you been looking for a job?

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Here is How You Can Get Hired: What can a potential employee do to get a job in a tough job market? As an employer myself I can honestly say most job applicants eliminate themselves from contention. Resumes with serious spelling and grammar errors hurt. Wanting a job with no experience, no training, and no effort by the applicant to understand the job applied for ends any chance of employment.

Formal training is required for some prospective jobs. Most jobs require research for a real shot at getting hired. If you are applying for a specialty job that requires licenses or degrees, have those degrees or licenses. Research the company you are applying for. The shotgun approach never works. I deny all applicants that performed no research on my company. Know what services we offer. Don't tell me you would like to give accounting a shot and would like $20 an hour while you test the field. I'll save myself the headaches and hassles by not hiring you.

Act professional. Dress appropriately for the job applying for. Be persistent. A true story will illustrate this best. A business client of mine was not hiring back in the early 1990s due to a soft economy. A young man with a dream of working for that particular company filled out a job application and submitted his resume. The job interview went well but was told the company was not hiring, but they would keep his application on file. The young man did his research and knew details on what the company did and how they performed. That is how he got a job interview in the first place. Turned down after the job interview, the young man arrived at the business early every morning to greet the boss with a million dollar smile. He asked politely if anything opened up since their last meeting. He did this for about a week when the boss invited the young man in and gave him a job. Why? The employer, my client, told me he always has room for more quality employees. Learn this lesson and you will have a job in no time. All risks aside, employers can always use more quality employees that want a job and not just a paycheck. Some will even hire new employees when they officially are not hiring.

My Side of the Desk: With everything said above, I have not hired a new employee in three years. Business was down three years ago, but up the last two years. This year I will hire one new full-time or two part-time employees. Additional work coupled with the cutback in hours by a current employee (she is retirement age) is forcing my hand, however reluctant. I dread the process. Sifting through stacks of applications, most from unqualified applicants that never even took the time to read the full description of the job offered, gives me a headache already. Most will not want a job, only a paycheck. I have enough bills. As an employer, I want to make money off your work. You get paid and I get a small pay increase for my efforts. Otherwise, what incentive do I have to hire anyone at all?

The future is cloudy, but necessity requires I hire at least one part-time person. From the employer’s perspective, I pray nonstop it works out.

If you stop by my office say "hello" to Karen at the front desk. I turned her down for a job when I wasn't hiring, too. She kept returning with a gut full of enthusiasm, outlining her skills (QuickBooks, Excel, Word) that are a direct fit and benefit to my business. She had the skills I needed in an employee. I relented and hired Karen. Must be ten years now. Good thing she didn't park outside my front door. I would have had to hire her two weeks sooner. Now I'm scared she will leave someday. Then what will I do?

Why employers hire quiz.

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    • Frankracetteconsu profile image


      7 years ago from Montreal

      i agree with "goodlady" and by the way "goodlady" product designer is hard ! people don't realize , how crucial a good looking product is. There is so much competition in the field. He might be interested to know that here in Canada there is several grants and tax programs for product designers.

    • rutley profile image


      7 years ago from South Jersey

      Been in small business for 25 years. You are correct. The other thing we've found is....people really don't want to work. Slackers! Mentality is....they think they're worth more than you pay them and new hires toot

      their own horns so much with little experience as to what

      the job description is. Great Hub!

    • GoodLady profile image

      Penelope Hart 

      7 years ago from Rome, Italy

      Fascinating. Am forwarding your Hub to my son who has just given up renting a studio he was sharing with others and has just this week decided he would be better off looking for a job. He lives and works in Milan. He is a product designer and simply can't hack it anymore as a free lance. (no paid work for him right now). I know your Hub wasn't written to inform people like him specifically but your Hub includes valuable information for anyone in the workplace, encountering the need to change, in any continent. Thank you.


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