The hiring headache facing small business owners right now

Exile on Main Street isn’t just a Stones record: It’s how a lot of small business employees are probably feeling right about now.

Thanks to the government shutdown, everyone’s looking at a wider batch of jobs data than usual to get a pulse check on the state of US hiring. Enter: ADP’s National Employment Report, released at the start of October, which looks at “anonymized weekly payroll data of more than 26 million private-sector employees in the United States.”

For Main Street, the report looked bleak. Small businesses, defined by ADP as companies with 49 employees or fewer, shed approximately 40,000 jobs in September, while large businesses, with over 500 employees, gained 33,000.

Rather than a blip, the findings from ADP’s latest report are a telling dispatch about the labor challenges facing small businesses right now, experts say.

Covid-era cracks: The story of the woes facing small businesses starts, at least in part, in the lead-up to the pandemic, when things didn’t look quite so dismal.

“Between 2017 to 2019, things were looking really, really good,” Holly Wade, executive director of the National Federation of Independent Business’s (NFIB) Research Center, told CFO Brew. “There was a solid foundation for small business owners to operate their business, grow their business.”

The pandemic, unsurprisingly, “was not kind to small business,” Joe Brusuelas, chief economist for RSM, an assurance, tax, and consulting firm, told us. From supply chain disruptions to “the dislocation both in the micro and macro of the US economy,” the pandemic, and the years following, have both “been real rough sledding for small firms,” he noted.

“The primary hallmark of the American economy in the post-pandemic era is we’ve gone from a period of abundant supply to scarce resources that resulted in that higher price level on a persistent basis, i.e., inflation,” Brusuelas explained, noting that this environment has also ushered in “a slower pace of business investment” and “a slower, if not somewhat volatile, pace of hiring for small business.”

Today, many small business owners are “in a space where they feel supported with the extension of the tax cuts that were in place in 2017 and a generally more favorable, on a federal level, regulatory environment,” Wade noted. But there’s a common culprit causing stress in 2025: In a recent NFIB report, 18% of small business owners said labor quality was their “single most important problem,” tied with taxes.

And, we’re back at the job situation.

David and Goliath: NFIB’s data tells “two sides of the story,” Wade explained, when it comes to the labor imbalance many small businesses are encountering. Some small businesses are “hesitant to increase their workforce because of the uncertainty of economic conditions and not knowing where things are going to go,” she said.

On the other side, you have Main Street businesses with open positions that can’t find qualified applicants, she continued. “The combination of the two doesn’t equal strong growth in the labor market. ADP showed a decline. From our standpoint, it’s pretty stagnant. We aren’t seeing much growth, whether it’s uncertainty or just the inability to hire and grow.”

“Despite an extended period of high interest rates and recent softness in job creation numbers, labor markets remain surprisingly tight,” Ben Johnston, COO of Kapitus, a small business lender and marketplace, told CFO Brew over email. “A tight labor market means that many small businesses are struggling to find quality candidates at prices they can afford.”

“It’s become much more difficult to find not just adequate labor, but appropriate labor,” Brusuelas added, citing a generational shift away from factory and agricultural work as well as a reduced flow of external labor since approximately the start of the second Trump administration. “What you’re seeing is that the onus is falling—and the burden of adjustment is falling—upon small businesses, most notably.”

Uncertainty affecting small business, too: But even as small businesses contend with a unique labor dynamic playing out right now, it’s not clear whether their challenges will overlap with those facing larger businesses.

“Small businesses are not the bellwether they once were for the overall health and direction of the American economy,” Brusuelas said.

But the current dynamic is instructive nonetheless. “If you listen to small business, it will tell you what you want to know,” he added. “They’re not terribly price competitive. They’re being subjected to another round of price increases that are resulting in thinning profit margins, and once profit margins begin to thin, the first thing to go is typically labor costs.”

“You can see that the appetite for risk in a highly uncertain situation has resulted in a general pullback,” he continued. “The increased pace of uncertainty over the past eight months is notable.”

And it’s the U-word that small businesses really need to get some clarity on before they can untangle some of the labor-related woes we’re seeing, because until that happens, most owners are sticking with the status quo “and not taking excessive risk,” Wade explained.

“As these dramatic shifts in policy on a federal level are worked out and become more clear with the path forward, small business owners will be able to adjust accordingly, whether that’s trying to recruit applicants for those open positions or maintain their current workforce, but the uncertainty element hopefully will start to decline moving into 2026,” she said.