Yearly pay raises that workers at small businesses used to count on have become a casualty of the weak economy. They’re increasingly based on performance — not just an employee’s performance, but the entire company’s. Raises at many businesses are also smaller than they were before the recession began five years ago. And some employers are using rewards other than annual raises to compensate workers.
There is a growing trend of small businesses abandoning the idea that they must give their workers raises every year.
Whether they’ll do well is the big question for many small-business owners. Jobs and incomes are growing, but not fast enough to make them more confident that a healthy economy will give their sales a boost. The most recent monthly jobs report showed that U.S. employers hired 155,000 people in December, less than the 175,000 or more that would get economists excited.
Companies that provide payroll services say the average pay levels at small businesses show how cautious owners still are about raises.
According to an analysis done by the payroll company Paychex, the average monthly paycheck at small businesses in November was 1 percent larger than it was a year earlier. In April 2011, by contrast, the average paycheck was up 3 percent from April 2010. Paychex bases its numbers on pay at more than 500,000 companies.
Raises were likely higher in early 2011 because companies were compensating employees for pay that was frozen or cut during the recession, says Frank Fiorelle, the senior director of risk management at Paychex. The slowing trend now may be reflecting the weaker economy, he says.
Pay is down at the smallest companies, says Michael Alter, CEO of SurePayroll, another payroll processor. The company has 40,000 clients with an average of seven employees each, and the average paycheck was down 1.4 percent in 2012.
SurePayroll found in a survey of its clients that 61 percent were holding off on raises or yearend bonuses until they knew the outcome of negotiations in Congress on the fiscal cliff, the combination of tax increases and budget cuts scheduled to go into effect Jan. 1. But while most of SurePayroll’s clients weren’t hurt by the tax increases that Congress approved, they’re still being cautious, Alter says. Salt Lake Tribune