Increased Use of Reservists Impacts Small Businesses

May 25, 2005--The Department of Defense's dramatic increase in the use of military reserves is not only taking its toll on military families, but it also is having a detrimental effect on small businesses. A report released earlier this month by the Congressional Budget Office (CBO) found that small businesses and self-employed reservists are the most likely to be severely affected by the vacancies caused by the increased frequency and duration of reservist activations.

The report found that small businesses employ about 18% of all reservists who hold civilian jobs. Of the 860,000 reservists in the Selected Reserves, which is the primary source of reserve personnel, between 8,000 and 30,000 hold key positions in small businesses. In addition, about 55,000 reservists are self-employed. While some businesses may be able to absorb the loss of personnel at little cost, the slowdown in production, lost sales or additional expenses required to compensate for a reservist's absence are likely to be most severe for these small businesses.

Reserve forces currently play an integral role in the current operations in the Middle East, making up about 33% of the service members deployed in November 2004 in Iraq and Afghanistan. According to the CBO report, many reservists probably did not anticipate the increased length of the activations that have occurred over the past few years and may be finding these mobilizations disruptive.

The rights of reservists to be reemployed by their civilian employers are guaranteed by the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA). However, the financial strain this puts on small businesses may be extreme. To help balance the rights of reservists with the financial stability of small businesses, the CBO report lists a number of options that could help alleviate some of the financial burden. Among the options offered by the CBO would be compensating businesses through tax credits or direct payments, subsidizing loans to employers, providing call-up insurance for businesses, or exempting certain reservists from call-ups.

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