Many small business owners are faced with the difficult decision of whether and when to hire employees as the US economy recovers from the virus pandemic.
Meghan Gardner’s company, Guardian Adventures, which ran educational summer camps, was forced to lay off 16 employees due to the pandemic, part of an industry decimated by the virus outbreak. Gardner obtained a Paycheck Protection Program loan and ran online camps during the summer, but she was unable to pay her employees by October.
Gardner would like to restart her business, but the virus continues to spread, and the future of children’s group activities remains uncertain. She is concerned that the summer of 2021 will be a repeat of the summer of 2020.
As a result, she’s working as a consultant and deferring hiring for the time being.
Gardner, whose company is based in Burlington, Massachusetts, says, “If I don’t get my business up and running and make enough money to pay my employees, I’ll have to lay them off again.”
Owners like Gardner, who are rebuilding or starting a business after losing theirs, are hesitant to commit to hiring because it’s unclear not only when the pandemic will end but also whether they’ll have enough revenue to justify hiring.
It’s a question of how comfortable customers will feel about gathering in places like restaurants, stores, and gyms for many business owners. Retailers aren’t sure how much business they’ve lost to online competitors in the long run. It’s too early for new business owners to know if their start-ups will be successful enough to hire employees.
According to the most recent business census, small businesses employed 47 percent of all workers in the United States in 2017. When payroll company ADP announced in April that the pandemic had forced the loss of 19 million jobs at its business customers, more than 10 million of those employees, or 52 percent, were laid off by businesses with fewer than 500 employees.
According to the most recent ADP data, small businesses have added about 6.2 million jobs since then.
A new $284 billion round of PPP funding could help small businesses hire more people, though owners will have more leeway than in previous rounds to spend the money on rent, marketing, and other expenses.
In the new round, the SBA approved nearly $73 billion in loans through Sunday. More than two-thirds of the loans were for less than $50,000, indicating that the smallest businesses needed help—the government-guaranteed 5.2 million loans totaling $525 million in the first two funding rounds last year.
At her confirmation hearing last month, newly sworn-in Treasury Secretary Janet Yellen stated that assisting small businesses with loans, such as those offered by the PPP, is “critically important.”
She stated, “We will do everything we can to get that money to struggling businesses as quickly as possible.” “When businesses that have served as the backbones of their communities fail, workers lose their jobs permanently, and communities suffer a tragedy.”
According to data from UKG, a work scheduling software company, one out of every six small businesses has closed its doors since the pandemic began. This suggests a smaller pool of small businesses that will be able to rehire once the virus has been brought under control by ongoing vaccinations.
Many of the small businesses that have remained open have suffered as a result of the pandemic. According to a Census Bureau weekly survey, for the second week in a row, 40% of small businesses reported lower revenue than the previous week, while only 5% reported higher revenue.
As a result, some small businesses are being forced to reduce their workforce once more. After falling below 10% in September, the proportion of workers laid off has topped 10% every week since mid-November, according to the Census. In the week ending January 10, more than 12% of small businesses made job cuts.
Small businesses will be slow to hire again once the economy improves if the years following the Great Recession are any indication. Owners have traditionally hired in the hopes of increasing revenue. However, following the recession, when an estimated 170,000 to 200,000 businesses failed, business owners waited until revenue justified the extra cost and risk. They discovered ways to improve the efficiency of their business.
Many business owners have also turned to freelancers or independent contractors to perform tasks that were previously performed by employees. Owners didn’t have to pay employment taxes or provide benefits for these workers because they were hired rather than hired as employees.
This strategy allowed business owners to hire workers with specific skills for short-term projects, giving them more flexibility. This aided business owners, but it had no effect on job growth figures, which exclude freelancers.
Independent contractors have been hired by Lakesha Cole for her new publicity business. She needed assistance right away, and hiring full-time employees for a newly launched company was too risky.
Cole started her company after being forced to close two gift shops she owned in Portsmouth, Virginia, and Jacksonville, North Carolina, last year; revenue at both locations plummeted as customers avoided in-person shopping, and Cole was forced to lay off three employees.
Cole’s new company in Tampa, Florida, is doing well, and she plans to hire at least two full-time employees later this year. But, she says, she must first ensure that her revenue stream is stable.
She says, “I want to make sure I generate enough income to be able to hire and retain people.”
Even hiring businesses, such as restaurants looking to reopen when it’s safe to eat indoors, are wary. If government regulations allow, Bret Csencsitz hopes to reopen the Gotham Bar & Grill by the summer, but he expects only 35 employees instead of the 100 that worked there before it closed in March.
Csencsitz, the managing partner of the upscale restaurant, says, “We simply don’t understand what the marketplace will look like.” He hopes to quickly hire more employees as diners return.
While owners like Csenscitz will have more certainty as the pandemic fades, others are dealing with financial difficulties that may jeopardize hiring plans.
Gardner expects to have to repay a portion of her PPP loan, complicating her financial situation while she waits to see if she can resume in-person summer camps and hire again.