Small Business, Self-Employed or Independent Contractor?

GALLOP: U.S. Small-Business Owners' Optimism Highest Since 2008:

"U.S. small-business owners are the most optimistic they have been in seven years ... and reflects optimism in small-business owners' views of both their current situation and their expectations for the future."

But what exactly is a "small business"? For their methodology, Gallup says they interviewed 600 U.S. business owners by telephone using samples compiled by Dun & Bradstreet among small-business owners with between $50,000 and $20 million in sales or revenue.

Bloomberg reported that a new definition of what constitutes a "small business" was being considered by the Treasury Department which places the upper limit for a small business at $10 million in annual gross income or deductions. Edward Kleinbard, a law professor at the University of Southern California, said: “Before this, you had the largest law firms in America with revenues over $1 billion, and they were being treated as small businesses. That’s just preposterous on its face.”

The Census Bureau does not define small or large business, but provides statistics that allow users to define business categories in any of several ways (see below). According to the US Census Bureau statistics, while there are more than 27 million businesses operating in the United States, only 655,587 of them employ 20 or more employees.

* Click chart to enlarge

In fact, the majority of U.S. small businesses are very small. A whopping 21 million are "nonemployers." In other words, they are self-employed individuals who pay taxes, but are not counted in the monthly jobs reports that are based on payroll data (because they do not have a payroll).

Of the 3.7 million of those with payrolls (who have 1 to 4 employees, or just self-employed), 11,000 were funds hedge funds — and another 3,300 were private equity firms.

And in all firms, there is an unknown number are independent contractors. But in 2006, the Government Accountability Office (GAO) released a report which indicated that 42.6 million workers were either independent or contingent — and included the following work categories:

• Agency temporary workers
• Contract company workers
• Day laborers
• Direct-hire temps
• Independent contractors
• On-call workers
• Self-employed workers
• Standard part-time workers

Robert Reich:" By the 1950s, when 35 percent of private-sector workers belonged to a labor union, they were able to negotiate higher wages and better working conditions than employers would otherwise have been “happy” to provide. But now we seem to be heading back to nineteenth century. Corporations are shifting full-time work onto temps, free-lancers, and contract workers who fall outside the labor protections established decades ago."

Money News: "The supply of unskilled labor is still pretty plentiful," said George Corona, chief operations officer at Kelly Services, one of the country's largest providers of temporary employees for light assembly plants and distribution centers ... Staffing agencies have played a growing role in the U.S. economy as companies have relied increasingly on temp hires. Temporary jobs accounted for a record-high 2.1 percent of total employment last year, about twice its share in 1990."

Times Record: "While 2014 was the strongest year of job gains in the recovery from the 2007-09 recession, rising output is not yet translating into substantial wage gains for the workers of Kelly Services, one of the country’s largest providers of temporary employees."

Related Post: Wage Theft —> How Two States are Fighting Against Companies that Categorize Employees as Independent Contractors

From a recent Bloomberg article titled "Where the Job Growth Is":

"It's been five years since payroll employment bottomed out in the U.S. in February 2010. Since then the economy has added 11.2 million civilian, non-farm jobs ... The fastest growing sector, in both percentage and absolute terms, is professional and business services. It added 2.9 million jobs for an 18 percent gain. The biggest single contributor to that was temporary help agencies, which added 888,000 jobs."

Fox News and the Republicans like to argue that 96% of the U.S. Chamber of Commerce's members are small business owners; but what they also deliberately fail to mention is that only 11% of all small American businesses actually belongs to that business lobbing group (the U.S. Chamber of Commerce) — and many are usually hedge funds, private equity firms, etc.

The Small Business Tax Cut Act of 2012, sponsored by then-House Majority Leader Eric Cantor (R-Va.), would have slashed taxes on the adjusted gross income of as many as 22 million small businesses — those with fewer than 500 employees — by as much as 20 percent for one year (and would have added billions to the deficit).

At the time, Rep. Pete Sessions (R-Texas) had said, "Congressional Republicans, once again today, will stand with small business across the nation." But he neglected to mention what type of small businesses they're standing for (e.g. hedge funds, private equity firms, etc.) Democrats complained that the GOP bill would have provided tax breaks whether companies hire additional employees or not, including to firms that fire workers. They said its beneficiaries would also include lobbyists, lawyers and pornography businesses.

Other Resources:

NAICS Definition: Establishments primarily engaged in acting as agents (i.e., brokers) in buying or selling securities on a commission or transaction fee basis are classified in Industry 523120, Securities Brokerage; and --- Investment clubs or individual investors primarily engaged in buying or selling financial contracts (e.g., securities) on their own account are classified in Industry 523910, Miscellaneous Intermediation.

Overview of BLS Wage Data by Area and Occupation

SBA: General Business Statistics