In just one year salaries nationwide have dropped more than five percent. The average annual pay handed out by small business owners in the U.S. is $29,995, according to the SurePayroll Pay Index and Small Business Scorecard, as compared to $32,290 last year.
"We've hit the floor in terms of the economy," says Michael Alter, the CEO of SurePayroll, a provider of payroll services for small businesses. "The owner is making less money and the employees themselves are taking home less. If you've got five employees, some that have been with you 20 years or are your brother-in-law, everyone will work for a little less to share in the pain."
During the downturn, many companies have turned to lay-offs, furloughs, benefit and pay cuts to keep their business running. "People are willing to make sacrifices to stay in their jobs and the market doesn't have a lot of comfortable opportunities from people to transition or leave a company," says Jeff Chavez, the president and CEO of NorthStart Thinktank, an Austin, Tex.-based mentoring network of small business and entrepreneur coaches.
The Small Business Scorecard, based on payroll data from nearly 25,000 businesses that use SurePayroll, found that salaries fell by 0.8 percent in July from the previous month. In the last month, small businesses with fewer than 50 employees let go of 177,000 employees, according to another report released by ADP, a payroll processing and human resources company.
John Barbour co-founded Barbour/LaDouceur Design Group, a Minneapolis-based architecture firm. When his company first began to fail he asked his 12 employees to work at a reduced salary. Then he cut their hours to part-time, and three of the employees picked up part time jobs to substitute income. Then he laid all but five off with the hopes of staying afloat. Eventually Barbour had to shut his firm down. Now he's attempting to start a new firm, Barbour Architecture, and one of his former employees is working on an hourly basis to get the company rolling. "A partial check is better than no check," says Barbour.
With former full-time employees unable to find work, many are turning to independent contracting. "Employers are trading out full-time employees for contractors," says Alter, "they don't have to commit and the [company] doesn't have to pay taxes."
Although independent contracting is not a feasible option for everyone, some have found refuge. "Transitioning people from full-time to contractor is a trend that will continue for businesses, it's a way to use people for less hours when you still need them around," says Chavez. "By nature [the economic situation] forces you to think about and create and find solutions that you are not forced to uncover when times are status quo."