NEW YORK (AP) — Small businesses face a mix of old and new challenges at the start of 2023. A looming recession, still-high (though falling) inflation and labor issues are some of the lingering issues from 2022 that small businesses will need to tackle. There are also new regulatory wrinkles, such as a proposed change in how gig workers are classified and more states requiring wage transparency. After three years of a precarious pandemic, what happens in 2023 will make a big difference in the ability of small businesses across the country to stay afloat.
RECESSION CONCERNS
In some ways, whether the economy is heading into a recession or not is less of an issue for small businesses than day-to-day operations.
Nela Richardson, chief economist for payroll firm ADP, said small business owners should focus on bigger issues like labor and wages.
“The recession is largely an academic matter,” she said. “We won’t know for several months, until it happens and no one on Main Street makes that call. It’s a long way from hiring and turnover.
Given the economic uncertainty, small businesses will need to control their costs and run their operations as efficiently as possible, said Ray Keating, chief economist at the Small Business & Entrepreneurship Council.
Keating said technology can help with efficiency and one way to cut costs is to expand the network in terms of providers.
INFLATION
The reason companies need to control costs is inflation, which appears to have peaked last summer but remains high. According to the latest government data, consumer prices rose 7.1% in November from a year ago, compared to an increase of 7.7% in October.
Experts say inflation is unlikely to fall back to levels seen before 2022, mainly due to rising wages and low employment. The monthly jobs report released on Friday showed wages rose 4.6% year-on-year in December and the unemployment rate was just 3.5%.
“We want the level of unemployment to rise because if it does, wage growth will slow, and not only is there no evidence of that happening, but if anything, wage growth is about to be propelled into that time of year when wages are rising,” David said. Lewis, CEO of human resources firm Operations Inc., which advises small businesses.
He said he expects inflation to remain in limbo.
“I don’t see inflation coming down significantly … but I don’t see it going back above that 8% level,” he said.
WORKFORCE
An ongoing challenge for small businesses is hiring and keeping workers. The case is particularly crude at the start of the year. Since companies usually give raises or bonuses at the end of the year, many workers use the period from mid-January to mid-April to decide whether to change jobs.
“Everything we see or hear suggests that companies need to consider double increases from what they used to do over the last 15 years on average in order to keep pace with everyone else,” said said Lewis of Operations Inc. “Unfortunately, small businesses have the fewest resources available to grow.”
Since small businesses can’t keep up with the increases of larger businesses, they will have to find new ways to retain workers in 2023.
Keating, from the Small Business & Entrepreneurship Council, said a solution for small businesses in 2023 could be more extensive on skills training.
“It’s not that they aren’t training them now, but they need to go further than they have in the past and train at all levels. This is one of the answers to these labor issues,” he said.
PROPOSED RULE FOR GIG WORKERS
The Labor Department has proposed a rule that would make it easier to classify the self-employed as employees, amid a longstanding debate over whether gig workers like Uber drivers or Instacart delivery people are subcontractors or employees.
The Labor Department said the proposal will protect workers and “level the playing field” for companies that classify their workers correctly, reducing the number of misclassified employees.
Workers classified as employees may receive benefits such as minimum wage and social security. But critics of the proposed rule say construction workers don’t always want employee status and the new rule will be a burden on small businesses
The proposed rule is “far too broad, cumbersome, arbitrary and confusing, meaning it will land countless independent contractors and freelancers in a ‘misclassified’ pit, if enacted,” said Karen Kerrigan , CEO of advocacy group The Small Business & Entrepreneurship Council.
The proposal applies only to laws that the Labor Department enforces, such as the federal minimum wage. But employers and courts often use Department of Labor rules as a guideline for broader issues.
The Labor Department’s final decision is expected this year, likely in the first quarter.
CHANGES TO MINIMUM WAGE/STATE REGULATIONS
Finally, small businesses should be aware of regulatory changes that will take effect in 2023, especially state regulations.
There are 27 states raising the minimum wage in 2023. For example, in Michigan, the minimum wage is expected to increase from $9.87 to $10.10 per hour. California sets the minimum wage at $15.50 per hour for all employees, regardless of employer size. This goes from $15 for employers with 25 or more workers to $14 for employers with less than 25 workers.
Pay transparency laws are also coming into force. As of January 1, California began requiring employers with 15 or more workers to list salary ranges on job postings. In New York State, a salary transparency bill is expected to take effect in September, requiring pay scales on job postings.
Minimum wage and wage transparency laws vary widely from state to state. Small businesses should therefore follow their local laws to ensure they keep up with any changes.
.