Fewer small businesses plan near-term raises, survey says

Dive Brief:

Less than half (44%) of U.S. small business owners said they plan to raise workers’ pay over the next three months, down from 50% a year earlier, according to Intuit QuickBooks Small Business Insights quarterly survey of more than 1,500 business owners with up to 100 employees conducted in July.
Of those who do plan to hike their workers’ pay, the expected average increase was 6.8%, according to the findings posted on the QuickBooks Blog. While that’s down from the 7% raises respondents said they targeted a year ago, it’s still well above the 2.9% annual inflation rate as measured by the Bureau of Labor Statistics’ monthly consumer price index report.
The mixed findings on employer hiring and pay outlooks come as many small businesses are anxious about the economy and the uncertainty stemming from the presidential elections, according to Shannon Weinstein, president of the fractional CFO services company Keep What You Earn. “Pay increases for employees are a large commitment, especially for small businesses. Many small businesses are facing tighter margins as costs rise and are also facing pricing pressure in the market,” she said.

Dive Insight:

Employers who have been challenged by hiring and retaining workers in a tight job market are seeing signs that the balance of power has begun to shift. On Friday the Bureau of Labor Statistics reported that unemployment ticked down to 4.2% in August, largely unchanged from 4.3% in July, but above the 3.8% seen a year earlier.

Citing the labor market, last month Federal Reserve Chair Jerome Powell signaled that the central bank intends to trim borrowing costs at its Sept. 17-18 meeting. “We do not seek or welcome further cooling in labor market conditions,” Powell said on Aug. 23.

So far, the easing in the labor market to date has not made it easier for employers queried by Intuit to retain skilled workers. Only 9% of those surveyed said retaining staff was easier compared to three months ago, down from 10% in April and 14% in July 0f last year.

In contrast to the SMB study, which portends richer increases for workers at small businesses, a recent Willis Towers Watson survey found that U.S. companies only plan to raise salaries 3.9% in 2025, and that they will be pulling back from median increases of 4.1% this year.

CFOs need to keep in mind that they will still need to budget for higher salary increases — over and above 3% or less that was more typical in the prior decade — because worker shortages will persist for some time, Lori Wisper, a WTW managing director, previously told CFO Dive.

The consultant Weinstein said she is seeing many small business owners downsizing their operations, and in some cases, cutting staff to maintain cash flow and margin. In the current environment, she cautions employers against locking themselves into overly rich pay or staffing expenses.

“My advice to many CFO clients is to not commit too much capital to long-term commitments without reasonable proof of return right now,” Weinstein said in an email. “The price of over-hiring or over-paying people is far greater over time if you cannot easily recover those costs.”