Personal Finance

Small business layoffs may have hit bottom: Study

Key Points
  • For small businesses, the worst of the coronavirus-related layoffs may be over, as some firms take steps toward rehiring workers, according to data from payroll provider Gusto. 
  • "We are no longer in this free fall," said Gusto co-founder Tomer London. 
How to protect your financial future if you've been furloughed
How to protect your financial future if you've been furloughed

The coronavirus pandemic caused an unprecedented jump in job losses, but the worst may be over, at least for now.

After spiking more than 1,000% in March, layoffs among small business leveled off last month, according to exclusive data compiled by human resource provider Gusto and based on more than 100,000 small businesses nationwide.

"We are no longer in this free fall," said Tomer London, Gusto's co-founder. 

Still, furloughs rose 138% from March to April, even as some employers began rehiring former employees. (An alternative to lay-offs, furloughs allow companies to bring workers back quickly when the economy starts to heal and, although these employees generally are not logging hours and don't earn wages, they may still be eligible for health insurance.)

Altogether, headcount among small businesses fell by 4.7% in April, according to Gusto.

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Like many other small businesses trying to survive right now, Three Babes Bakeshop in San Francisco has been through it all. In early March, "we first started cutting hours and part-time workers and then all of our customers cancelled orders and we laid off 20 of 26 workers," said founder Lenore Estrada.

"We laid off workers early, hoping they could get a jump on unemployment benefits," she added.

In May, Estrada received a loan through the Paycheck Protection Program and has since rehired a few employees but the lack of public transportation and child care remain issues.

Lenore Estrada is the founder of Three Babes Bakeshop in San Francisco
Photo: Three Babes Bakeshop

"We need to figure out the new normal," said Estrada. For Three Babes Bakeshop, that could mean a storefront with a retail window, she said. Estrada has also started the SF New Deal, a non-profit which pairs restaurants with online delivery services to provide meals to the city's vulnerable populations. 

By re-imagining their businesses or pivoting to online operations, these small firms "are in a fight for their lives right now," Gusto's London said.

Gusto found that, on a weekly basis, modest improvements in employment were concentrated in the last two weeks of April, as some limited operations began again and small business owners brought workers back in order to meet the forgiveness requirements of the PPP loan program. Those loans are supposed to be forgivable if at least 75% of the proceeds go toward payroll.

We need to figure out the new normal.
Lenore Estrada
founder of Three Babes Bakeshop

Businesses operating in states that announced partial reopenings in early May notched the greatest gains in employment overall, Gusto found. On a percentage basis, the largest increases in headcount were in Kansas, Kentucky, Nebraska, Ohio and Utah, the payroll provider said.  

Small businesses in industries that were less affected by the crisis also made strides in April, including facilities, finance and consulting.

And nearly all states had more hiring than terminations in the last week of the month, with the only exceptions being New York, Delaware and Virginia.

Gusto's data is based on their own customers, which are primarily small businesses with 100 employees or less.

Overall, small businesses employ roughly 59 million people in the U.S., according to the Small Business Administration. 

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How unemployment benefits are calculated
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