Small Business, Huge Impact
by TARA WOLCKENHAUER
Ms. Tara Wolckenhauer has been Vice President of Human Resources at Accredo Health Group, Inc. since 2009. Ms. Wolckenhauer has served in a number of HR roles within the Medco organization since 2000. Prior to Accredo, she served as Senior Director of Human Resources at Medco. Ms. Wolckenhauer is a graduate of the University of Scranton, Scranton, PA.
Announcer: Ms. Tara Wolckenhauer has been Vice President of Human Resources at Accredo Health Group, Inc. since 2009. Ms. Wolckenhauer has served in a number of HR roles within the Medco organization since 2000. Prior to Accredo, she served as Senior Director of Human Resources at Medco. Ms. Wolckenhauer is a graduate of the University of Scranton in Scranton, Pennsylvania. Please welcome to Elevate 2015, Tara Wolckenhauer.
Tara: Welcome, Elevate participants. Today we'll discuss small business and its significant impact. Let's get started on our journey together. Thank you so much for this opportunity to be with you today. ADP is simply delighted to participate in Elevate 2015. What a fantastic event. Here's what we'll discuss in the brief time we have together. We'll talk a bit about me, about ADP, small business and its economics, and ADP's small business insights.
So a little bit about me. My name is Tara, and I'm the Divisional Vice President of Human Resources for our small business services division, which includes our retirement services and insured services business lines and our PEO and ASO business lines, which are represented by TotalSource resource and comprehensive services. I've been lucky to be in the field of human resources for close to 20 years with a variety of experience globally including mergers and acquisitions, strategy, and talent development.
Let's spend time getting to know ADP now. Today ADP proudly serves 625,000 business, and 50 million workers rely on us for benefits administration, payroll, taxes, and compliance. ADP is known around the world for payroll, but a growing number of our clients know us for far more than that. Take a look at our solutions on this slide. We give them the tools, not just to track their people, but to make them even better: our recruiting, compensation, and talent management tools, the software and unique data analytics we provide, and the power to shape a workforce matched to their business strategies and needs. It's a wonderful organization.
Although today we are a global company with approximately 52,000 associates working in 40 countries, our beginnings were very humble. Few know, but we began in 1949 as a small business in a tiny office above Greakers Ice Cream Parlor in Paterson, New Jersey. Today we serve over 425,000 small business clients, and at ADP, we define small business as having fewer than 49 employees. And nearly 300,000 of our small business clients have fewer than even 10 employees. Small business is in our DNA. We understand and appreciate their needs.
Let's take a look at some small business economics. To understand scale, let's look at the U.S. government's numbers around the small business sector. As you can see, there are approximately 28 million small businesses in the United States. But did you know not all of them have employees? In fact, about 23 million of them are non-employers, or what we call sole proprietors. So to keep it simple, let's say there are about 5 million small businesses with employees.
The U.S. Business Administration and the Bureau of Labor Statistics are rich sources of data about small businesses. Let's look at some of their figures. As you can see, of all the companies with employees, 99.7% of them are small businesses. The U.S. government defines a small business as having fewer than 500 employees. But not only that, small businesses create nearly two thirds of net new jobs and contribute just over half of the U.S. gross domestic product. One fact I find very interesting is that almost half the people who are employed in the United States work at small companies.
In this next slide, it's really interesting to see the range of small business ownership. By looking at the graphs, you can see that 36% of small businesses are women-owned, with 15% minority owned, and 9.1% veteran owned. Did you know that more than half are home-based businesses, and more than a quarter are family-owned businesses? These dynamics are quite fascinating in the small business space. Many people often ask us, "About how many new businesses start each year?" And we found out that according to these government figures, about 742,000 employer births occur every year. Can you imagine 742,000 new businesses entering the market each year?
Here's another view into small business economics. Let's look at the segmentation above. You can take a look at those numbers and see that more employees work on the smaller end of small businesses, and that's with less than 19 or so employees. The larger end of small businesses, again, as defined by the U.S. government has both fewer employees working in them and less businesses established.
Let's take a minute now to understand how small business hiring compares to hiring in larger companies. We'll turn now to our ADP Research Institute employment records for that. Given the nature of data we can access about the workplace, ADP has a unique view into the market place, particularly when you consider that we pay one in six Americans. Compared to the government definitions, ADP defines a small business as one having 49 or fewer employees. And according to our national employment report, small businesses hired more worker in the July 2014 to July 2015 period than did larger companies. They also had a larger percentage of employment growth.
The ADP Research Institute shows that small businesses create jobs for a significant part of the U.S. workforce. You can see this in the above graph. Small business also hired 41.9% of the workforce, edged out only slightly by mid-sized companies, and small businesses hired nearly three times the number of employees than larger companies did. Since 2008, small business hiring significantly outperformed hiring done by larger companies. Compare the 5.8% you see above, which is the rate of job growth in small business, to the growth rate in larger companies, at 1.2%. As you can see, the small business segment is truly a driver of growth and needs talent.
So there is really no doubt that small businesses are on the move, and they contribute significantly to our national economy. Take a minute to think about the small businesses in your cities, towns, and local communities. Think about the people you know who work there and shop there, including yourself. You begin to see how important they are to the fabric of our neighborhoods.
But let's also take a minute to think about the owners of these small businesses. What do you think motivated them to start? From my perspective, I think it's simple. They had a vision, a passion, and drive, and let's not forget some perseverance, but the truth of the matter is that small business owners are not necessarily experts in all aspects of running a business. There's so many complexities in managing people, filing taxes, the never-ending changes to rules and regulations, and it's these complexities and challenges that keep small business owners up at night.
ADP recently conducted research about small business hiring. Our survey revealed some tremendous insights. It's insights like these that shed new light on what it truly means to succeed in starting and growing a small business and how very important it is to hire people that you can trust, that fit into the culture, and that want to grow the business. A talent strategy is absolutely critical, and so let's look at some key statistics about this.
Would you be surprised if I told you that in spite of all their hiring, 8 out of 10 small businesses do not have a dedicated HR professional to help them? Based on our research, the vast majority, anywhere from 70% to 90% or more of small business owners complete hiring tasks themselves manually without any help of hiring tools or resources. You know, we're talking about tasks like writing job descriptions, finding candidates, screening resumes, setting up interviews, even the onboarding and record keeping all falls in the hands of the owners. And they spend about 32 hours for every new hire.
Their greatest amount of time in this 32-hour span is dedicated to sourcing and finding those candidates, conducting those interviews, screening, onboarding, tracking. I mean, when you think about all of this time, again, an average of 32 hours for every new hire, you can easily imagine the loss of productivity to the small business. Remember, they started their small business to fulfill a dream, not deal with administrative or human resource-like tasks. So it's not surprising that most admit they lack confidence in the hiring process. Some even admit they lack the skill to hire people. Their leading concerns include hiring employees that are going to stay, hiring the best employee for the position, offering competitive benefits, and receiving accurate background information.
When you dive even deeper, 40% say hiring was harder than they ever thought it was going to be, and one third said it took even longer. Most small businesses, 7 out of 10, experience problems during the hiring process, including, and as we just noted, the hiring cycle, and that it took longer than expected, a loss of productivity during the product cycle, and that they had an inability to focus on core business and responsibilities while engaged in hiring. What's also worth noting is that our research shows that most small business owners are less than fully satisfied with their recent hires.
After all of that work and the timelines we've already discussed, their top concerns include company fits, performance, and professionalism. In yet another survey, we found that 64% of small business survey respondents say that while conducting background checks is not difficult, only half even bother with them. And the reason they don't bother with them is because of the time it takes, and they can't risk that time to productivity. And gosh, what a huge risk they're taking. So we see small business owners are not just trying to grow their business. They're also trying to manage complexity, challenges, and pain points at the very same time.
The good news, and in spite of these challenges, according to our national employment report, small businesses were able to create about 750,000 jobs thus far in 2015. That's truly remarkable. It's incredible, especially when you're considering the hiring challenges and the loss to productivity we just discussed. But as you can probably imagine, there are so many other challenges beyond hiring that the small businesses face each and every day, like filing taxes, or complying with complex and challenging regulations, like the Affordable Care Act and overtime rules, or even protecting employee information and other sensitive data, managing cash flow and making payroll and payroll taxes, insurance and trying to offer benefits, dealing with competition or the cost of labor, and the list goes on and on.
To me, this contrast is what makes the small business story so significant. On the one hand, small businesses are vital to the economy. The numbers show it; you saw them yourselves. But on the other hand, in spite of all the challenges they face, not to mention their being time-pressed, resources-starved, and often cash-strapped, millions of small businesses across the country manage to thrive. Somehow they do it. What a remarkable story it is.
So if I ask you to take one thing away from this presentation it would be this, shop small. Every time you shop at a small business, you acknowledge their importance in your community. When you shop small, you're also acknowledging that perseverance, determination, and desire. ADP is so proud to provide tools and resources to help small business owners focus on what matters most to them, the passion behind what drove them to fulfill their dreams.
Thank you for this opportunity to share these insights with you, and enjoy the rest of the conference.