January 18, 2017 (Washington, D.C.) – The JPMorgan Chase Institute released its newest report today on the financial health of small businesses and employment challenges they continue to face. The first-of-its-kind report reveals new information about small business employment growth and the volatility small business owners experience when managing payroll expenses.
“The Ups and Downs of Small Business Employment” reports that most small businesses experience substantial volatility in payroll expenses. Moreover, more than two-thirds (68 percent) of small employer businesses either reduced their number of employees or added less than the equivalent of one full-time employee in a calendar year. The typical small business saw payroll expenses grow by 8.5 percent per year. These payroll expenses were significant for small employer businesses, with the typical owner paying $18,700 in payroll expenses a month, or 18 percent of all outflows for their business. Making their financial situation even more difficult to manage, small businesses with employees had only 18 cash buffer days, compared to 27 cash buffer days for small businesses overall.
“Payroll is a significant expense for employer small businesses and managing it has an impact on not only the health of their business, but also the people they employ,” said Diana Farrell, President and CEO, JPMorgan Chase Institute. “With increased focus on the positive impact small businesses can have on the economy, it’s critical to understand what these new insights mean for job creation and policies that aim to support both small businesses and their employees.”
The Institute analyzed 65 million anonymized transactions from 45,260 small business customer accounts over the nine non-holiday months from February 2015 to October 2015. This unique dataset provides a granular view of payroll growth and volatility and their impact on employment at the individual business level.
Key Findings: The Ups and Downs of Small Business Employment
- Finding One: Payroll for most small employer businesses grew by less than the equivalent of one full-time employee in a calendar year, with median annualized payroll growth of 8.5 percent.
- 36% of small employer businesses decreased their payroll expenditures.
- 32% of small employer businesses increased their payroll expenditures by less than the equivalent of one full-time employee.
- 31% of small employer businesses increased their payroll expenditures by more than the equivalent of a single full-time employee.
- Finding Two: Payroll expenses were a material outflow for employer small businesses, which held fewer cash buffer days than nonemployer small businesses.
- Payroll expenses varied from a median of $11,700 per month in the Restaurant industry to a median of $36,600 per month in the High-Tech Services industry.
- Payroll as a percentage of outflows varies substantially across industries—payroll only comprised 10 percent of the outflows of a typical wholesaler or retailer, but 27 percent of the outflows of a typical High-Tech Services firm.
- The typical employer small business had only 18 cash buffer days, compared to 27 cash buffer days for the typical small business overall.
- Finding Three: Most employer small businesses experienced unstable payroll and employment volatility including job gains and losses and other spikes and dips in payroll.
- 38% of small businesses experienced payroll changes that are likely more stable and small – perhaps taking on a part-time employee or changes in hours worked by employee(s).
- 62% of small businesses experienced changes in payroll that are less stable: large spikes and/or dips in payroll (possibly paying employee bonuses or catching up on a missed payroll expense) and sustained gains and/or losses in full-time employees that increase payroll volatility.
- Finding Four: The typical small employer business experienced substantial volatility in payroll outflows, and volatility was highest for younger small employer businesses.
- While most firms had payroll volatility that tended to reflect large payroll gains and losses that were greater than the equivalent of paying one full-time employee, their overall net payroll growth rate was still less than the equivalent of one full-time employee.
- Payroll volatility was substantially higher for firms less than two years old than for firms greater than two years old.
- Finding Five: Small employer businesses with more volatile payroll patterns tended to have fewer cash buffer days.
- Small businesses with dips, combined gains and losses, and both spikes and dips had the fewest cash buffer days.
- Small employers with spikes were one exception to this rule, which may reflect businesses that pay bonuses or commissions with growing revenues.
Read more about the impact of payroll expenses on the financial stability of US small businesses.
About the JPMorgan Chase Institute
The JPMorgan Chase Institute is a global think tank dedicated to delivering data-rich analyses and expert insights for the public good. Its aim is to help decision makers – policymakers, businesses, and nonprofit leaders – appreciate the scale, granularity, diversity, and interconnectedness of the global economic system and use better facts, timely data, and thoughtful analysis to make smarter decisions to advance global prosperity. Drawing on JPMorgan Chase & Co.’s unique proprietary data, expertise, and market access, the Institute develops analyses and insights on the inner workings of the global economy, frames critical problems, and convenes stakeholders and leading thinkers. For more information visit: www.jpmorganchaseinstitute.com.