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Richard Branson, the founder of Virgin Group, once said that “big business starts small.” One could even argue that the economy would almost certainly wane without the spirit of small business leading the way. In fact, data from the Small Business Administration drives this point home, with SMBs accounting for more than 40% of US economic activity.
The takeaway? Whether they are tech-savvy startups or mom-and-pop retail shops, small businesses frequently end up being the steady footing that supports the economy’s foundation. Through thick and thin, they are the constant that keeps commerce moving forward.
This is not to say that running a small business is a cakewalk by any stretch — far from it! Often, it means being a “Chief-Everything-Officer,” from running payroll and recruiting employees to handling all the back-office tasks that pile up. How do these self-starters keep the momentum going and decide where to devote their time?
To get a sense of the future these trailblazers see on the horizon, we recently surveyed over 1,000 small businesses to learn more about how they’re managing growth, attracting new hires, and even how they choose the payroll software that’s part of their tech stack.
OnPay’s SMB market survey was conducted in the fourth quarter of 2023, gathering insights from small businesses across a wide range of demographics and company sizes. Among our primary objectives was to better understand who SMBs are, the industries they serve, the challenges they face, and key behavioral trends in payroll, human resources, and employee benefits. The data below is designed to offer actionable takeaways for business owners of all sizes and industries, as well as to help them get a sense of how their “small-business brethren” are putting their best foot forward.
Let’s learn more about the professionals who took the time to participate.
- 1,074 responses
- Age range: 22 to 64 years old
- Employee size: 1 to 50 employees
- Business age: Over 6 months old
In addition to being ambitious, many survey respondents likely wear many hats when overseeing day-to-day operations, as the headcounts at these enterprises are far from being astronomical:
- 47% have 1 to 5 employees
- Over 4 out of 5 SMBs have 20 employees or less
In terms of age, respondents were a mix of aspiring newcomers and business owners ranging from 26 to 64 years old, including Generation X and Z, several millennials, and entrepreneurs from the tail end of the baby boom. In terms of experience, nearly a third of polled businesses have been operating for more than ten years, with approximately 20% of each business having been in operation for:
- 1 to 3 years
- 3 to 5 years
- 5 to 10 years
The reason we’re pointing this out is that participants have had the opportunity to learn lessons over the years, bringing real-world experience to their survey responses that business owners of all shapes and sizes may benefit from.
What do small businesses specialize in?
As you might expect, the SMBs that keep the economy moving come from a variety of market sectors that consumers likely interact with on a regular basis. Here are the industries most of the professionals we polled have experience in, with many more in the graph below.
- Professional Services
- Restaurants, Hospitality, and Tourism
High-level findings and small business sentiment
So how are business owners feeling about what comes next? Just over half (53%) shared concerns about inflation and general expenses taking a toll on their operations. Despite the economy foremost in their minds, these “doers” are not getting caught up in doom and gloom scenarios. On the contrary, 52% of survey respondents have their sights set on expanding their operations in 2024 and beyond.
Of course, taking those next steps typically comes with bringing on new hires who want to make a difference (and do more than collect a paycheck). It’s not surprising that many of the business owners who took our survey are taking a strategic approach to building out their teams. In fact, 41% acknowledge that hiring the right employees is a must to keep the momentum going. That’s likely why more than 60% are personally involved in both the hiring of new employees and their company’s onboarding processes.
In addition to bringing on new hires who have a vested interest in their company’s success, SMBs want to make sure that their top performers stick around for the long term. Around 26% find that employee retention keeps them up at night.
Have you ever glanced at your to-do list and thought about how helpful it would be to have more hours in the day? Business owners certainly have. Twenty-nine percent want to know how to make better use of their time (or simply figure out how to complete all the “must-dos” on their task list in less time).
In addition to being more efficient, SMBs also have their sights set on spending less time on administration, so they’re able to focus on other facets of their business. Thirty-six percent said they would rather not get bogged down in their company’s bookkeeping, while 31% said they would be willing to delegate the heavy lifting of running payroll to someone else.
Switching gears, only one-third of participants believe that they are more tech-savvy than their peers. To be fair, this could be a case of “technology overload,” as last year there seemed to be almost daily headlines about the pace of artificial intelligence and the flood of A.I. tools (both free and paid) promising to make mundane tasks a thing of the past.
Who do small businesses hire?
W-2 employees, independent contractors, gig workers — oh my! Employers looking to take their business up a notch have plenty of options. SMBs take advantage of both talent that can help with short-term projects and those who are looking to make an impact as full-time employees. For example, 53% of those we polled have W-2 workers on the payroll.
That said, a sizable 41% of employers are comfortable with engaging 1099 contractors when the need arises, dipping into the pool of freelancers when they have project needs that don’t require full-time help.
Remote worker rumblings
Only four years ago, the coronavirus had many of us holed up at home, taking part in more video meetings than we could ever have imagined. Despite the widespread availability of video conferencing (and nearly ubiquitous wireless connectivity), only about one-third of small businesses are willing to consider fully remote team members.
Benefits as a company builds up momentum
In general, employers are keeping up to date on the perks that new job seekers (and their long-standing employees) want. In previous surveys, we’ve found that many job applicants are on the lookout for more than a competitive salary, seeking out those employers that incorporate benefits as part of their recruiting mix. The benefit that appears most often at the top of employee wish lists is health insurance, and it seems that many employers who participated in our survey understand that health benefits can be a difference-maker when it comes to recruiting efforts.
As the saying goes, “The proof is in the pudding.” Forty-six percent of the small businesses we surveyed provide some type of health insurance option, understanding that it can help attract the attention of talented potential employees. In addition, as employee size grows, the likelihood of offering health benefits greatly increases.
For those keeping score, you may be wondering about the 54% of SMBs we polled who do not currently offer health benefits — and why they’ve decided to hold off for the time being. Around half of these businesses have thought about offering coverage. It may just be a matter of taking their operations to a new phase before these perks become part of their culture. That’s because the two biggest obstacles they face in offering health insurance benefits are:
- Cost (82%)
- Not having enough employees (62%)
How do these SMB’s conduct their research when searching for a health benefits provider? Most would tap into their network before making a decision. We found that three out of five would rely on a recommendation or referral from another business owner in addition to healthcare provider websites.
Even in an increasingly digital age where data is typically at your fingertips through a web search or company website, respondents made it clear that they still want to discuss options with the carriers they are considering. According to our research, when signing up, a whopping 79% also want to speak with a health benefits representative to understand how plans work.
Health insurance is just one of the benefits that employers are offering as they look for ways to differentiate themselves from competitors.
Sights set on retirement savings
In addition to health benefits, 38% of respondents have thought about offering team members the opportunity to build their savings through an employer-sponsored retirement plan. Though it is a surefire way to help a company stand out when hiring, there are probably some other reasons why employers are looking into offering employees the opportunity to build a nest egg.
- More and more states are passing legislation that requires employers to offer their employees a way to sock away money for post-work life. In most cases, these are state-sponsored retirement plans that employers may opt out of if they already offer a plan
- Uncle Sam is taking costs into consideration, and offering plans is not as much of a heavy lift as it used to be for small businesses. Laws such as Secure 2.0 extend tax credits to smaller employers (50 or less) that offer workers access to a retirement savings program
- Savings opportunities continue to evolve. For instance, at the beginning of 2024, the Starter 401(k) became available, easing some of the compliance rules for small businesses
What about workers’ compensation?
Despite the protection that workers’ compensation provides both employees and employers, almost 50% of those who participated in our poll are going without coverage. This can be a little risky. By law, almost all states and the District of Columbia require employers to carry coverage. Even the states that without requirements (Texas and South Dakota) highly recommend that companies consider making the investment in this insurance.
Why does workers’ compensation sometimes fall by the wayside? Chances are this is not negligence, but more likely that some businesses need a hand with the heavy lifting. Of the 55% of companies that shared that they do carry workers’ compensation coverage, a whopping 90% said getting a plan set up was simple. For those who don’t yet have a policy, it could just be a situation where they need some direction from an insurance partner they are comfortable with.
To take this a step further, 28% of employers we polled responded that they have plans to put a workers’ compensation policy in place. The takeaway is that many may be aware of the benefits of a policy for both them and their staffers, BUT may not realize that this type of coverage is likely a “must-have” in the state where they do business.
What about other regulations they’re required to keep track of?
In addition to staying compliant with workers’ compensation, some states have laws in place that require employers to offer paid family leave, short-term disability, and as mentioned earlier in the article, there can also be state-mandated retirement plans to keep up with.
So how are small businesses feeling about staying current with all that’s required, and how do they keep informed?
- Over two-thirds (67%) are somewhat or fairly confident that they’re staying compliant with changing regulations in the state(s) where they have workers
- Over two in five are staying informed about compliance requirements through vendor emails or newsletters
- A little more than half utilize research on government websites in the state(s) where they do business
HR heavy lifting
When growing a team, back-office tasks come with the territory. This is a reality for businesses of all shapes and sizes. When SMBs think of HR, hiring employees, benefits, compliance, and payroll are typically what come to mind.
For example, when bringing on new hires, there are no exceptions when it comes to making sure that I-9 forms are completed and on file or submitting employee W-4s. And for organizations that must get these administrative to-dos completed? Even though many are likely burning the midnight oil to get things done, the majority handle the responsibilities in-house: 55% say that they personally work on tasks related to human resources.
Still, others share this part of the workload with a coworker, or in some cases, there is a specialist on staff. Twenty-nine percent of respondents say that they divvy up the administrative tasks with someone on their staff, while a handful (roughly 11%) have a dedicated HR professional on the payroll to take care of it all.
Interestingly, though 3% look outside their organization for help, most small businesses keep their human resource efforts in-house. This can make a lot of sense for entrepreneurs who want to shape their workplace culture as the company grows without relying on outside influences.
Many small businesses with busy schedules are looking to do more with less, while stretching their budget as far as possible. On top of everything else, paying employees is a big part of the equation. So how are SMBs handling what can sometimes be a tricky, but necessary task? It’s a mix.
Almost half (around 49%) are using a payroll software provider to get the job done. That said, others understand this is not always a do-it-yourself consideration, as 23% choose to outsource this important task, and count on their accountant or trusted bookkeeper to take care of the number-crunching.
That said, there are even some, roughly 18%, who stick with more traditional tools like Excel and Google Sheets to stay on top of calculating payroll.
The last thing SMBs want is for the platform they pick to create a bottleneck or present new challenges. It wasn’t a shock that 87% of the enterprises that we engaged were involved in the decision-making when sizing up the different options that they have at their disposal.
Most want a system that’s trustworthy, easy to use, and makes running payroll one less thing to worry about. So, what do businesses look for when choosing a provider, either when running payroll for the first time, or when they’re ready to make a switch?
Anatomy of a software search
It’s safe to say that when doing their homework, business owners know what they are looking for and avoid going overboard when researching the payroll software market. For instance, over two-thirds of survey respondents considered one to two providers before making their choice.
Though a little over half were only interested in one function — how the software processes employee payments — a significant subset wanted to know about other offerings they could take advantage of. Nearly 40% looked for payroll software with other features to help them administer benefits and streamline their HR operations. This is consistent with earlier observations: offering employees perks — and ensuring that they are properly accounted for — is top of mind. This goes a long way toward recruiting efforts and retaining top performers.
Getting help outside their organization
By now, we can all agree that entrepreneurs have very few reservations about rolling up their sleeves and getting the job done. There are also certain tasks they are open to outsourcing, particularly when they have an expert at arm’s length.
This syncs with data that we have gathered from previous years: Many SMBs consider the accountant they work with to be a trusted advisor, and their role and responsibilities go far beyond number crunching. So, it came as no surprise that respondents are more than comfortable reaching out to their accountant for help with tasks that require a step up in expertise. They are also willing to make an additional investment in the services they believe will have a positive impact on their business.
What are some of the tasks they would like to take off of their plates — and are willing to invest resources in? A lot of it boils down to compliance, building their team, and planning for the future.
The good news is that most have a grasp on what can make a difference and already have relationships with those who can lend a hand. When it comes to additional services that an SMB would pay more for:
- 35% want help with financial planning
- 31% want accounts payable/accounts receivable, as well as help with tax credits
- 25% would like help with state tax registration
Taking a closer look, there are some interesting connections between the data we touched on earlier and what SMBs are willing to invest in as their company scales. For instance, a significant number are open to budgeting for assistance with planning and support when it comes to setting up employee amenities like health benefits (28%) and retirement savings (25%).
Though the payoff can be significant in terms of recruiting top talent and keeping those long-standing contributors from looking for greener pastures, offering competitive perks can take a lot of time, energy, and patience. So much so that third-party administrators are often called upon to assist with the details. Working with an external expert can help employers best understand the options that make the most sense for their company’s needs.
Small businesses are always climbing
Even in the face of economic uncertainty, small businesses are always ready to rise to the occasion. Business owners are generally optimistic, seeking ways to attract talent and efficiently scale their operations. Though SMBs should embrace their independence because it has helped them succeed, they should also consider how they can get help when they need it. This can ensure that compliance-related tasks are not overlooked (and that they can make the best decisions for themselves and their employees in the future).