.png)
If you've tried to hire recently, you probably already know what the data confirms: finding good employees is hard right now.
According to the Bank of America 2025 Small Business Owner Report, 61% of small business owners say they're impacted by labor shortages. And the U.S. Chamber of Commerce Small Business Outlook shows that 33% of small businesses have jobs they can't fill, which is well above the historical average of 24%.
This isn't just an inconvenience. It has real financial implications. Whether you're planning to hire next year or struggling to fill positions now, understanding the labor landscape helps you budget more accurately and compete more effectively.
Let's start with what the surveys are showing:
Labor shortages are widespread:
Compensation is rising:
Despite challenges, hiring continues:
The pattern is clear: businesses need workers, workers are hard to find, and compensation is rising as a result. That's not likely to change soon.
When business owners budget for hiring, they often focus on salary. But salary is just the starting point. The fully-loaded cost of an employee includes:
As an employer, you'll pay Social Security (6.2%), Medicare (1.45%), federal unemployment (FUTA), and state unemployment taxes. Depending on your state and experience rating, this adds roughly 7-10% to base salary costs.
Health insurance, retirement contributions, paid time off, and other benefits can add 20-40% to compensation costs. Even if you don't offer robust benefits, candidates increasingly expect them. The Goldman Sachs survey found that 40% of small business owners want help offering benefits, recognizing this as a competitive necessity.
Required in most states, costs vary significantly by industry and job classification. High-risk industries can pay 5-10% of payroll; lower-risk office jobs might pay 0.5-1%.
Job postings, recruiter fees, interview time, background checks, training materials, and the productivity ramp-up period all add up. Estimates vary widely, but replacing an employee can cost 50-200% of their annual salary when you factor in everything.
Computers, software licenses, workspace, tools, and other supplies needed for the new employee to do their job.
A general rule: add 25-40% to base salary for a rough estimate of total employment cost. A $50,000/year employee might actually cost you $65,000-$70,000 when everything is included.
The labor market is forcing businesses to adapt. Here's what the data shows about how owners are responding:
50% of business owners are working longer hours due to staff shortages (Bank of America). This is a short-term solution that's not sustainable and often prevents owners from focusing on growth and strategy.
Rather than waiting until positions are vacant, smart businesses are raising compensation to retain existing employees and attract better candidates. The 40% raising wages aren't doing it reluctantly. They're doing it strategically.
36% are relying more on automation and AI to handle demand (U.S. Chamber). This isn't about replacing workers. It's about doing more with the team you have.
52% plan to maintain current staffing levels while 43% plan to add employees (Bank of America). Businesses are being thoughtful about when and who to hire, rather than filling positions reflexively.
If you're planning to hire next year, here's how to build a realistic budget:
What you paid for a role two years ago may not be competitive today. Look at current job postings, salary surveys, and what competitors are offering. With 40% of businesses raising wages, your old salary ranges may be outdated.
Don't just budget salary. Include payroll taxes, benefits, workers' comp, and overhead. Use the 25-40% multiplier as a starting point, then refine based on your specific situation.
In a tight labor market, filling positions takes longer. If you need someone by March, start recruiting in January. Factor in interview time, notice periods, and onboarding when planning your timeline.
The Paychex survey found 17% of businesses are challenged by turnover and no-shows. Budget some contingency for the reality that not every hire works out.
Adding employees adds complexity. Make sure your payroll and HR systems can handle additional employees efficiently, and that you're staying current on compliance requirements.
In a tight labor market, keeping your current employees is just as important as finding new ones. Every departure means going back into a competitive hiring environment.
This doesn't mean you need to match every competitor's offer, but it does mean being proactive about:
All of this connects to your broader financial planning. Hiring decisions affect:
Having clear visibility into your finances through accurate bookkeeping and regular review of your financial statements helps you make hiring decisions with confidence rather than guesswork.
If you're planning to hire in the coming year:
The labor market is challenging, but businesses that plan carefully and budget realistically are still finding the people they need to grow.
