Friday, September 16, 2011

Not Hiring: The Untold Story of Small Business in America

Small business isn't hiring, and the reasons are invisible to those without any real-world small business experience.



Most of the discussions about boosting hiring and employment are detached from the realities faced by actual small-business employers. Pundits protected by ivory-tower tenure or plump think-tank positions can indulge in the luxury of debating the efficacy of modest tax cuts on hiring, but for those in the trenches of small business, these economic-policy debates are as germaine and valuable as debating how many angels can dance on the head of a pin.


The reality is that adding an employee is very costly and adds multiple layers of risk. Small business is not going to hire another employee because the employer's share of Social Security taxes is a few hundred dollars less. Adding an employee could, without exaggeration, cost the employer his business and/or his sanity. Think of someone in the ocean with a water-logged life preserver, someone whose head is barely above water. That is the typical small business employer: it won't take much to push him/her under.


Robert F., a small-business employer for 22 years, shares the rarely-addressed point of view of the employer:

I own a security firm in a major Western-U.S. city. I have been an employer for 22 years. What a nightmare it is! Few seem to understand why businesses don't want to hire--here's my perspective.


Once I hire someone, I am party to a relationship that is full of risk. What usually happens is the "check harvesting" situation where just enough work is done to extract a paycheck. I am on the hook for matching Social Security tax, medicare tax, city occupational tax, unemployment tax, federal unemployment tax, workers comp insurance and all the abuse that goes along with that system. I have to withold State and Federal income taxes with ridiculous penalties for late payments. Often I will get served with a garnishment or child support levy for an employee, and I am on the hook for all this. If I fail to withold on a garnishment I become liable to pay the debt.


To take one real-life example of many: after all this, the employee can't get along with others, grows a beard and says it's a religious right, needs weekends off because he goes to church and it's descriminatory for me not to give him time off for his beliefs.... soon I'm looking for a way to fire him. Now the rage begins! I am subject to violence, attacks, retribution, slander-- everything all because the employee won't/can't do the job he accepted.


I have been through terminations where I was threatened with a gun, had to call the cops, etc. The usual take is that the police will take action after the homicide spree is done with. My nice Chrysler car got a cinder block thrown throught the window a few years back (oh, but there's no proof it's the guy I fired one week ago who punched his fist throught the window and had the paramedics haul off out of my office.)


Sure, I've had some great employees too--people who I only have good things to say about. I also paid them every cent I owed them and they often got more than their base pay--bonuses, extras, etc. But I could write another two pages on malicious lawsuits. For example, I promote some guy and a woman is burned up because she didn't get it and "it's discrimination." One guy is gay and other employees tease-- my job to step in and mediate and manage the mess and "This is a hatefull workplace-I'm going to be talking to a lawyer."


If I advertise for a job opening, my office fills up with the angry, over-qualified, alcoholic dead-beats and weed smokers... they all have rights of course and I owe them a job. So, Obama says employers need to hire the uenmployed? Yeah, sure! Sorry if I sound bitter-- this is my last year doing this and then I am going solo/free-lance. While I might earn less, I will have my sanity!

Many non-employers will read this and dismiss it as hyperbole or atypical; those of us who have had burdensome payrolls know it is simply realistic. The issues of high costs and multiple risks are societal and cannot be reduced to econometric quantification; the burdens and entitlements built into the labor market are not fully revealed by statistics.


As someone who has experience as an employee, as an entrepreneur who ran a small business with dozen or more employees, and as someone who has spent decades as a self-employed free-lance contractor, I understand the compelling benefits of sole proprietorship in which all labor is subcontracted to other free-lancers/sole proprietors: the taxes, healthcare, insurance and all the rest are the responsibility of each free-lancer/contractor.


This arrangement places a premium on professional conduct: in this world, each sole proprietor agrees to do X work for Y compensation paid in Z timeframe. A focus on entitlement is of no interest to people expecting professional behavior and results. An "entitlement/employee" attitude will quickly alienate those who just need X work done in Y timeframe, and unprofessional work or conduct will result in a loss of future work.


The 1980s song proclaimed "take this job and shove it:" in this era, it's small business owners who are muttering, "take this business and shove it, I'm outta here."


While the dearth of small business hiring mystifies pundits and government officials, it's no mystery to me: I hear from small business owners all the time, and the vast majority are bailing out of their business and the travails of employees, taxes and legal hassles for retirement or a free-lance/contract mode of business.


In this world, security comes not from contractual obligations imposed on employers, but on the quality and professionalism of the work and behavior. Those who mourn the passing of the old era are free to start their own businesses and hire as many people as they want.



Email alert: As a result of family visits and obligations, I will be unable to respond to email for the next few weeks. Blog entries will likely be sporadic as well. Your understanding is greatly appreciated.



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