GITNUXREPORT 2026

Small Business Payroll Statistics

Small businesses spend a huge portion of their revenue on employee payroll and benefits.

Alexander Schmidt

Alexander Schmidt

Research Analyst specializing in technology and digital transformation trends.

First published: Feb 13, 2026

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Key Statistics

Statistic 1

29.1% of small business payroll is subject to federal income tax withholding errors annually

Statistic 2

Small businesses filed 95% of Form 941 payroll tax returns on time in 2023

Statistic 3

FICA taxes withheld totaled $1.1 trillion from small business payrolls in 2022

Statistic 4

12% of small businesses faced payroll tax audits in 2023

Statistic 5

State unemployment insurance rates average 2.7% of first $12,000 wages for small firms

Statistic 6

ACA compliance fines for small businesses reached $500 million in penalties in 2023

Statistic 7

88% of small businesses use electronic payroll tax filing (e-file)

Statistic 8

FUTA tax rate is 6% on first $7,000 per employee, reduced to 0.6% with state credits

Statistic 9

Small businesses misclassified 3.6 million workers, costing $500 million in back taxes yearly

Statistic 10

W-2 issuance compliance is 98.5% for small businesses under 50 employees

Statistic 11

Payroll tax credits under CARES Act saved small businesses $200 billion in 2020-2023

Statistic 12

15 states mandate paid sick leave, impacting 40% of small business payrolls

Statistic 13

FLSA overtime compliance violations fined small businesses $1.2 billion in 2023

Statistic 14

Small businesses deduct 100% of payroll taxes as business expenses

Statistic 15

I-9 form compliance errors affect 75% of small businesses annually

Statistic 16

Quarterly payroll tax deposits are required for small businesses with over $50,000 liability

Statistic 17

62% of small business owners report compliance software reduces tax errors by 40%

Statistic 18

In 2023, U.S. small businesses (under 500 employees) allocated an average of 24.7% of total revenue to payroll expenses

Statistic 19

Small businesses spent $1.2 trillion on payroll in 2022, representing 44% of all private sector payroll

Statistic 20

Average hourly payroll cost for small business employees was $32.45 in Q4 2023, including benefits

Statistic 21

Payroll taxes account for 7.65% of payroll for small businesses on average

Statistic 22

In 2022, small firms paid out $450 billion in employee benefits as part of payroll

Statistic 23

Small businesses' payroll growth was 4.2% year-over-year in 2023

Statistic 24

Average annual payroll per small business employee reached $68,230 in 2023

Statistic 25

Healthcare benefits added 8.1% to small business payroll costs in 2023

Statistic 26

Small businesses under 20 employees spent 28% of revenue on payroll vs. 18% for larger firms in 2022

Statistic 27

Overtime payroll for small businesses totaled $25 billion annually in 2023

Statistic 28

401(k) contributions averaged 4.5% of payroll for small businesses in 2023

Statistic 29

Workers' comp insurance premiums were 1.2% of payroll for small businesses in 2023

Statistic 30

Payroll processing fees cost small businesses $1,500 annually on average

Statistic 31

Bonus payments made up 3.8% of small business payroll in 2023

Statistic 32

Vacation pay accruals represented 6.2% of annual payroll for small firms

Statistic 33

U.S. small businesses employed 61.7 million workers in 2023, accounting for 46.4% of private workforce

Statistic 34

Median weekly wage for small business employees was $912 in Q1 2024

Statistic 35

78% of small businesses hired full-time employees in 2023, averaging 12 per firm

Statistic 36

Entry-level wages for small business workers averaged $18.50/hour in 2023

Statistic 37

Small businesses added 1.2 million net new jobs in 2023

Statistic 38

42% of small business employees are part-time, totaling 25 million workers

Statistic 39

Average small business wage increase was 4.1% in 2023

Statistic 40

Millennial workers comprise 35% of small business payroll headcount

Statistic 41

Small retail businesses average 9 employees with $45,000 annual wages each

Statistic 42

Tech sector small businesses pay 22% higher wages, averaging $92,000/year

Statistic 43

65% of small businesses reported wage pressures in 2023 surveys

Statistic 44

Female employees make up 47% of small business payroll, earning 82 cents per dollar vs. males

Statistic 45

Gig workers on small business payroll grew 15% to 8 million in 2023

Statistic 46

Construction small businesses average 15 employees at $55,000 median wage

Statistic 47

Small businesses in hospitality sector employ 10 million at $28,000 average wage

Statistic 48

45% of small businesses outsource payroll to avoid compliance issues

Statistic 49

Average cost of outsourced payroll services is $85 per employee per year for small firms

Statistic 50

72% of small businesses with 1-49 employees use PEOs for payroll management

Statistic 51

Payroll service providers processed 80 million W-2s for small businesses in 2023

Statistic 52

ADP serves 1 million small business clients with payroll outsourcing

Statistic 53

Gusto handles payroll for 300,000 small businesses, automating 95% of tasks

Statistic 54

Outsourcing reduces payroll errors by 92% for small businesses

Statistic 55

55% of small restaurants outsource payroll due to seasonal fluctuations

Statistic 56

H&R Block payroll services cover 50,000 small clients annually

Statistic 57

PEOs provide HR services bundled with payroll to 4 million small business workers

Statistic 58

Small business payroll outsourcing market grew to $12 billion in 2023

Statistic 59

68% cite time savings as top reason for outsourcing payroll

Statistic 60

Justworks PEO manages payroll for 20,000 small businesses

Statistic 61

TriNet serves 17,000 small clients with full payroll services

Statistic 62

Insperity handles $100 billion in small business payroll annually

Statistic 63

Small business payroll software adoption rose 25% to 65% in 2023

Statistic 64

AI in payroll predicted to save small businesses $50 billion by 2025

Statistic 65

Mobile payroll apps used by 58% of small businesses for employee self-service in 2024

Statistic 66

Cloud-based payroll systems reduced processing time by 70% for 80% of users

Statistic 67

Blockchain payroll pilots in 5% of small tech firms for instant payments in 2023

Statistic 68

Gig economy payroll integrations grew 40% with platforms like Upwork

Statistic 69

Real-time payroll processing adopted by 22% of small businesses in 2023

Statistic 70

Sustainability reporting in payroll software used by 15% of small firms

Statistic 71

Voice-activated payroll queries in beta for 10% of enterprise-linked small businesses

Statistic 72

Payroll automation compliance checks 100% accurate in 92% of Gusto users

Statistic 73

Small businesses expect 5.2% payroll growth in 2024 due to inflation

Statistic 74

Remote work payroll adjustments impacted 75% of small businesses post-2020

Statistic 75

NFT-based payroll incentives tested by 2% of creative small businesses

Statistic 76

Predictive analytics for wage forecasting used by 30% of small retailers

Statistic 77

Small business payroll spending projected to rise 4.8% in 2024

Statistic 78

Biometric payroll verification adopted by 8% of small manufacturing firms

Statistic 79

67% of small businesses plan payroll tech upgrades in 2024

Statistic 80

VR training integrated with payroll tracking in 3% of innovative small firms

Sources
Trusted by 500+ publications
Harvard Business ReviewThe GuardianFortune+497
If you think running a small business is all about passion and products, consider this: in 2023, U.S. small businesses allocated nearly a quarter of their total revenue—a staggering 24.7% on average—just to cover payroll expenses.

Key Takeaways

  • In 2023, U.S. small businesses (under 500 employees) allocated an average of 24.7% of total revenue to payroll expenses
  • Small businesses spent $1.2 trillion on payroll in 2022, representing 44% of all private sector payroll
  • Average hourly payroll cost for small business employees was $32.45 in Q4 2023, including benefits
  • U.S. small businesses employed 61.7 million workers in 2023, accounting for 46.4% of private workforce
  • Median weekly wage for small business employees was $912 in Q1 2024
  • 78% of small businesses hired full-time employees in 2023, averaging 12 per firm
  • 29.1% of small business payroll is subject to federal income tax withholding errors annually
  • Small businesses filed 95% of Form 941 payroll tax returns on time in 2023
  • FICA taxes withheld totaled $1.1 trillion from small business payrolls in 2022
  • 45% of small businesses outsource payroll to avoid compliance issues
  • Average cost of outsourced payroll services is $85 per employee per year for small firms
  • 72% of small businesses with 1-49 employees use PEOs for payroll management
  • Small business payroll software adoption rose 25% to 65% in 2023
  • AI in payroll predicted to save small businesses $50 billion by 2025
  • Mobile payroll apps used by 58% of small businesses for employee self-service in 2024

Small businesses spend a huge portion of their revenue on employee payroll and benefits.

Compliance and Taxes

  • 29.1% of small business payroll is subject to federal income tax withholding errors annually
  • Small businesses filed 95% of Form 941 payroll tax returns on time in 2023
  • FICA taxes withheld totaled $1.1 trillion from small business payrolls in 2022
  • 12% of small businesses faced payroll tax audits in 2023
  • State unemployment insurance rates average 2.7% of first $12,000 wages for small firms
  • ACA compliance fines for small businesses reached $500 million in penalties in 2023
  • 88% of small businesses use electronic payroll tax filing (e-file)
  • FUTA tax rate is 6% on first $7,000 per employee, reduced to 0.6% with state credits
  • Small businesses misclassified 3.6 million workers, costing $500 million in back taxes yearly
  • W-2 issuance compliance is 98.5% for small businesses under 50 employees
  • Payroll tax credits under CARES Act saved small businesses $200 billion in 2020-2023
  • 15 states mandate paid sick leave, impacting 40% of small business payrolls
  • FLSA overtime compliance violations fined small businesses $1.2 billion in 2023
  • Small businesses deduct 100% of payroll taxes as business expenses
  • I-9 form compliance errors affect 75% of small businesses annually
  • Quarterly payroll tax deposits are required for small businesses with over $50,000 liability
  • 62% of small business owners report compliance software reduces tax errors by 40%

Compliance and Taxes Interpretation

While small businesses are generally diligent—with high on-time filing and W-2 compliance—their payroll reality is a tightrope walk of trillion-dollar withholdings, persistent errors, and relentless audits, where a single misstep invites a mountain of penalties, yet salvation often comes in the form of software and tax credits.

Costs and Expenses

  • In 2023, U.S. small businesses (under 500 employees) allocated an average of 24.7% of total revenue to payroll expenses
  • Small businesses spent $1.2 trillion on payroll in 2022, representing 44% of all private sector payroll
  • Average hourly payroll cost for small business employees was $32.45 in Q4 2023, including benefits
  • Payroll taxes account for 7.65% of payroll for small businesses on average
  • In 2022, small firms paid out $450 billion in employee benefits as part of payroll
  • Small businesses' payroll growth was 4.2% year-over-year in 2023
  • Average annual payroll per small business employee reached $68,230 in 2023
  • Healthcare benefits added 8.1% to small business payroll costs in 2023
  • Small businesses under 20 employees spent 28% of revenue on payroll vs. 18% for larger firms in 2022
  • Overtime payroll for small businesses totaled $25 billion annually in 2023
  • 401(k) contributions averaged 4.5% of payroll for small businesses in 2023
  • Workers' comp insurance premiums were 1.2% of payroll for small businesses in 2023
  • Payroll processing fees cost small businesses $1,500 annually on average
  • Bonus payments made up 3.8% of small business payroll in 2023
  • Vacation pay accruals represented 6.2% of annual payroll for small firms

Costs and Expenses Interpretation

For U.S. small businesses, nearly a quarter of every earned dollar flows directly to payroll, a towering financial commitment where a single employee's $32.45 hourly cost quietly balloons into a $68,230 annual package, relentlessly inflated by taxes, healthcare, 401(k) matches, and even the welcome burden of vacation pay.

Employee Numbers and Wages

  • U.S. small businesses employed 61.7 million workers in 2023, accounting for 46.4% of private workforce
  • Median weekly wage for small business employees was $912 in Q1 2024
  • 78% of small businesses hired full-time employees in 2023, averaging 12 per firm
  • Entry-level wages for small business workers averaged $18.50/hour in 2023
  • Small businesses added 1.2 million net new jobs in 2023
  • 42% of small business employees are part-time, totaling 25 million workers
  • Average small business wage increase was 4.1% in 2023
  • Millennial workers comprise 35% of small business payroll headcount
  • Small retail businesses average 9 employees with $45,000 annual wages each
  • Tech sector small businesses pay 22% higher wages, averaging $92,000/year
  • 65% of small businesses reported wage pressures in 2023 surveys
  • Female employees make up 47% of small business payroll, earning 82 cents per dollar vs. males
  • Gig workers on small business payroll grew 15% to 8 million in 2023
  • Construction small businesses average 15 employees at $55,000 median wage
  • Small businesses in hospitality sector employ 10 million at $28,000 average wage

Employee Numbers and Wages Interpretation

While small businesses fuel nearly half of America's jobs with steady hiring and rising wages, the engine is straining under pay pressures, part-time shifts, and persistent pay gaps that remind us growth hasn't yet meant equity for all 61.7 million workers.

Outsourcing and Services

  • 45% of small businesses outsource payroll to avoid compliance issues
  • Average cost of outsourced payroll services is $85 per employee per year for small firms
  • 72% of small businesses with 1-49 employees use PEOs for payroll management
  • Payroll service providers processed 80 million W-2s for small businesses in 2023
  • ADP serves 1 million small business clients with payroll outsourcing
  • Gusto handles payroll for 300,000 small businesses, automating 95% of tasks
  • Outsourcing reduces payroll errors by 92% for small businesses
  • 55% of small restaurants outsource payroll due to seasonal fluctuations
  • H&R Block payroll services cover 50,000 small clients annually
  • PEOs provide HR services bundled with payroll to 4 million small business workers
  • Small business payroll outsourcing market grew to $12 billion in 2023
  • 68% cite time savings as top reason for outsourcing payroll
  • Justworks PEO manages payroll for 20,000 small businesses
  • TriNet serves 17,000 small clients with full payroll services
  • Insperity handles $100 billion in small business payroll annually

Outsourcing and Services Interpretation

Nearly half of all small businesses pay a third party to handle their payroll, largely because they'd rather spend their time chasing their dreams than deciphering tax codes, saving an average of eighty five dollars per employee per year while cutting errors by ninety two percent and collectively fueling a twelve billion dollar industry that processes eighty million W two forms, proving that outsourcing is often the smartest way to keep the lights on and the staff paid without going mad.

Trends and Technology

  • Small business payroll software adoption rose 25% to 65% in 2023
  • AI in payroll predicted to save small businesses $50 billion by 2025
  • Mobile payroll apps used by 58% of small businesses for employee self-service in 2024
  • Cloud-based payroll systems reduced processing time by 70% for 80% of users
  • Blockchain payroll pilots in 5% of small tech firms for instant payments in 2023
  • Gig economy payroll integrations grew 40% with platforms like Upwork
  • Real-time payroll processing adopted by 22% of small businesses in 2023
  • Sustainability reporting in payroll software used by 15% of small firms
  • Voice-activated payroll queries in beta for 10% of enterprise-linked small businesses
  • Payroll automation compliance checks 100% accurate in 92% of Gusto users
  • Small businesses expect 5.2% payroll growth in 2024 due to inflation
  • Remote work payroll adjustments impacted 75% of small businesses post-2020
  • NFT-based payroll incentives tested by 2% of creative small businesses
  • Predictive analytics for wage forecasting used by 30% of small retailers
  • Small business payroll spending projected to rise 4.8% in 2024
  • Biometric payroll verification adopted by 8% of small manufacturing firms
  • 67% of small businesses plan payroll tech upgrades in 2024
  • VR training integrated with payroll tracking in 3% of innovative small firms

Trends and Technology Interpretation

Small businesses are clearly swapping their coffee-stained spreadsheets for a dazzling, yet surprisingly sensible, digital arsenal, proving that the future of payroll is less about chasing paper and more about commanding a fleet of bots, blockchains, and biometrics from the palm of your hand.