For small businesses, a hesitancy to hire
Added costs can outweigh gains in sales
By Megan Woolhouse
Globe Staff / February 14, 2011
FRANKLIN — For the first time in years, Bill and Donna Olson, owners of a small contractor supply company, feel hopeful. Sales of power tools, ladders, and generators are up. More customers are visiting their showroom. Most important, nails — their business’s lifeblood — are selling again.
The uptick in sales should mean new hiring. But when Donna Olson tallies the cost of salary, unemployment insurance, and other expenses to hire even a single employee, she hesitates.
The Olsons’ seven-person company, Marathon Tool, would need to sell about 20 million more nails — enough to fill four truckloads — to pay for just one new counter clerk.
“It’s crippling,’’ she said, hovering over her calculator.
The Olsons’ caution illustrates one reason hiring has remained sluggish, even as profits climb and employer confidence grows. With the steep cost of creating a job — especially in a still uncertain economy, and particularly in industries related to construction — employers are thinking long and hard before taking on the long-term costs of additional hiring.
Unemployment remains stubbornly high, and finding ways to jump-start hiring is a national priority. Last week, President Obama implored US corporations to stop hoarding cash and use some of it to expand payrolls.
A significant acceleration in hiring, however, will depend on small businesses, such as Marathon Tool. More than half of private sector workers in both the state and nation work for companies with fewer than 100 employees, according to the US Labor Department. A recent survey by the National Federation of Independent Business, the small-business lobby, showed that while small businesses are more optimistic about economic conditions, only 3 percent plan to boost hiring.
“They feel like the recovery is coming along, that things are better and that they’ve weathered the storm,’’ said Bill Vernon, director of the federation’s Massachusetts office. “But they probably want to see a bit more before they start growing.’’
Such uncertainty leads businesses to hesitate when they consider taking on the costs of new workers. And it’s not just salaries. Associated Industries of Massachusetts, the state’s largest employer group, estimates nonwage expenses can total as much as 40 percent of annual pay in Massachusetts.
At Marathon Tool, the Olsons said hiring one counter clerk at $35,000 a year would require them to also pay $1,750 in state unemployment insurance premiums, $2,170 in federal payroll taxes, $583 for workers’ compensation insurance, and $280 for federal unemployment insurance. Just covering the salary would require them to sell about 17.5 million more nails; add the nonwage costs, and that’s another 2.4 million nails.
Costs are rising, too — which must also be considered in the hiring equation. Between 2009 and 2010, for example, Marathon tool’s state unemployment insurance costs jumped by $10,000 even as company sales plummeted 60 percent.Continued...