it261: A Look at Non-Employer Businesses from the SBA

Tuesday 20 November 2018

A Look at Non-Employer Businesses from the SBA

The U.S. Small Business Administration's (SBA) Office of Advocacy recently released A Look at Non-Employer Businesses, a one-page summary of key data on non-employers businesses.

"Non-employer" is the terms used by government agencies to describe businesses that have a business owner, but no traditional (W2) full or part-time employees.

The data is collected by the U.S. Census and comes from tax data. Most non-employers are independent workers (freelancers, independent contractors, gig workers, etc.), but some are shell companies of various kinds.

Two charts from the one-pager jumped out at us.

The chart below shows that the number of non-employer businesses has been growing about 2% a year of the past 15 years, reaching 24,813,048 in 2016. Over the same period, the number of employer businesses has more or less stayed the same at a bit under 6 million.

Their are a number of reasons the number of non-employers has been increasing. The main ones are it's easier and cheaper to start and operate a non-employer business and more people are starting part-time non-employer businesses to supplement their income and/or pursue a passion.

See the MBO Partners State of Independence report for much more detail on why there are more non-employer businesses.

There's also a number of reasons why employer SMB numbers aren't increasing, but it's a longer story and we'll go into it in a later article.

But one reason is very small businesses no longer need to hire traditional (W2) employees as much as they used to. Instead, they can use contract labor, outsourcing and automation.

So one reason the number of employer SMB's isn't growing is because the number of non-employers is growing.

The other chart we find interest cover the demographics of non-employers and the owner of employer small businesses. As you can see from the chart below, non-employers are much more diverse.