Recent findings from payroll provider ADP showed that small businesses hired more than large employees during the fall of 2023. According to ADP, employers with fewer than 50 employees added 95,000 employees, while employers with 500 or more employees cut 83,000 jobs in September 2023. The divergent trends suggest that small businesses still need employees to produce and grow, while large employers can afford to reduce their workforce to mitigate inflation’s impact on their businesses.
For job seekers, this means that although job opportunities are available, they may not come with the most competitive wages or benefits. In fact, ADP found that only 18% of small businesses plan to change wages in the next three months, compared to 50% of midsized businesses and 58% of large businesses. Therefore, small businesses may need to consider other tactics to attract and retain workers.
“From a retention perspective, the most cited reason for small businesses’ challenges is the demand for higher salaries.” – Tina Wang, vice president of HR at ADP
With many midsized and large businesses planning on improving compensation to better retain workers, small businesses will need to make tough decisions about how to increase compensation or face the prospect of losing workers to competitors who are offering more. For small businesses unable to raise employee compensation as high as they would like, voluntary benefits can offer more perks to employees without raising health care costs. Voluntary benefits supplement traditional benefits (e.g., health insurance) and are usually employee-paid.
While many organizations have embraced offering voluntary benefits as an integral part of their benefits strategy, more small businesses will either embrace these benefits or expand their offerings in 2024. According to ADP, 24% of small businesses plan on expanding employee benefits in the next three to six months. Voluntary benefits are extremely popular with employees and allow employers to tailor their benefits to employee demands and needs. Bolstering voluntary benefits will be an effective way to expand their benefits offerings to strengthen retention efforts without raising costs in 2024.
When increasing wages isn’t an option, many employers understand that connection and communication can improve employee productivity and retention. ADP found that 27% of small businesses are focused on improving the employee experience in the next three to six months and 25% are upskilling current employees. Workplace flexibility and mental health support will also be essential for small businesses trying to establish a healthy and positive workplace culture.
Employer Takeaways
Competition to win over talent remains a challenge for many small businesses. Since the onset of the COVID-19 pandemic, the talent market has been a day-to-day challenge for most organizations, but especially for smaller ones. While labor challenges are trending down in 2024, they will likely remain an operational challenge for small businesses. The recent ADP report indicates that the Federal Reserve’s interest rate hikes could finally be impacting the labor market. According to the U.S. Bureau of Labor Statistics’ October jobs report, the number of job openings decreased to 8.7 million—the lowest level recorded since March 2021. This report indicates that the labor market is cooling. As a result, many employees will likely choose to stay with their current employer rather than look for opportunities elsewhere. This decreases employers’ need to replace departing workers and could cause further cooling of wage growth.
