How Many Employees does a Small Business have? | Average Number of Employees in Small Businesses

According to the Small Business Administration (SBA), a small business is defined as having fewer than 500 employees, but the reality is quite different.

The vast majority of small businesses across all industries operate as non-employer firms, meaning they have no paid employees other than the owner.

Professional services leads with 81.7% of businesses operating without employees, while transportation and warehousing has 94.2% non-employer firms.

Manufacturing shows the highest proportion of businesses with employees at 39%, followed by healthcare at 24.2%.

This trend reflects the growth of solopreneurs, independent contractors, and the gig economy.

Technology and digital tools have enabled many businesses to operate efficiently without traditional employees.

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Manufacturing leads all industries with 39% of small businesses maintaining employees, reflecting the labor-intensive nature of production operations.

The breakdown for manufacturing shows 61% operate without employees, 29.8% have 1-19 employees, and 9.2% employ 20-499 people.

Healthcare and social assistance ranks second with 24.2% of businesses having employees, driven by direct patient care requirements.

Construction follows with 21.5% of businesses employing staff, balancing core teams with project-based subcontractors.

Retail trade maintains 21.4% of businesses with employees, adapting to changing consumer behaviors and e-commerce integration.

Professional services, despite being the largest sector with 4.7 million businesses, has only 18.3% with employees.

Transportation and warehousing has the lowest proportion at 5.8%, heavily influenced by gig economy platforms.

The Small Business Administration uses the 500-employee threshold as the primary criterion for small business classification across most industries.

This definition encompasses a wide range of business types, from sole proprietorships to companies with several hundred employees.

The 500-employee limit applies to retail, manufacturing, construction, professional services, and most other sectors.

However, some industries may have different size standards based on annual receipts rather than employee count.

This broad definition helps ensure that various business models and growth stages are included in small business statistics and support programs.

The SBA regularly reviews and updates these standards to reflect changing economic conditions and industry characteristics.

Digital transformation has revolutionized how small businesses operate, with cloud-based tools and automation software enabling solo practitioners to serve larger client bases.

Professional services benefit from digital tools that allow independent consultants, freelancers, and specialized service providers to compete effectively.

E-commerce platforms and point-of-sale systems allow small retailers to operate efficiently with minimal staff, supporting online and hybrid business models.

App-based platforms in transportation and warehousing support the growth of independent contractors, contributing to the 94.2% of businesses operating without employees in this sector.

The rise of remote work and flexible work arrangements has made it easier for businesses to operate with contractors rather than traditional employees.

Lower overhead costs, reduced regulatory compliance, and greater operational flexibility make the no-employee model attractive to many entrepreneurs.

Specialized expertise and niche services can often be delivered effectively by individual professionals without requiring a traditional workforce structure.

Industry standards provide important benchmarks - manufacturing typically requires more employees while professional services often operate with fewer or none.

Assess your operational efficiency needs and whether core functions require dedicated staff or can be outsourced to contractors.

Market demand and growth potential should guide staffing decisions, as rapid growth may require building internal capacity.

Technology integration capabilities can significantly impact staffing needs - automation and digital tools may reduce employee requirements.

Consider the available talent pool in your area and the cost of hiring versus contracting specialized services.

Evaluate regulatory requirements and compliance costs associated with having employees versus independent contractors.

Financial considerations include not just salaries but also benefits, payroll taxes, insurance, and administrative overhead.

Seasonal or project-based work patterns may favor flexible staffing models over permanent employees.

Your business model and customer service requirements will determine whether you need dedicated staff for consistent operations.

Cloud-based tools and automation software have revolutionized professional services, enabling solo practitioners and small teams to handle larger client bases efficiently.

E-commerce platforms and digital point-of-sale systems allow retail businesses to operate with minimal staff while maintaining competitive service levels.

App-based platforms in transportation have created new business models supporting independent contractors rather than traditional employee structures.

Manufacturing is experiencing automation integration that enables smaller teams to maintain high productivity levels despite being the sector with the highest proportion of employers.

Digital health platforms and telemedicine are changing traditional healthcare staffing models, though direct patient care still requires human interaction.

Construction management software and digital tools are improving project efficiency and coordination, affecting workforce planning.

Customer relationship management (CRM) systems and automated marketing tools reduce the need for administrative and sales staff.

Artificial intelligence and machine learning are increasingly handling routine tasks across all industries, from customer service chatbots to automated bookkeeping.

Professional services continues to lead the trend toward non-employer businesses, with 81.7% operating without employees, reflecting the growth of independent consultants and freelancers.

Transportation and warehousing shows the most dramatic shift with 94.2% non-employer firms, largely driven by gig economy platforms like ride-sharing and delivery services.

Construction maintains a balanced approach with 78.5% non-employer firms, utilizing a mix of independent contractors and project-based staffing models.

Retail trade is adapting to e-commerce integration with 78.6% operating without employees, supported by digital platforms and automated systems.

Healthcare shows moderate employee retention at 24.2% due to direct patient care requirements, though telemedicine is creating new staffing models.

Manufacturing stands out with 39% of businesses maintaining employees, the highest among all sectors, due to the labor-intensive nature of production operations.

These trends reflect broader economic shifts including digital transformation, changing work preferences, and the rise of flexible work arrangements.

The COVID-19 pandemic accelerated many of these trends, particularly in remote service delivery and contactless business operations.

Small businesses represent over 99% of all U.S. businesses but demonstrate much lower average employee counts compared to larger corporations.

The SBA data shows that within small businesses, the majority operate with zero employees, while those with staff typically employ 1-19 people.

Only a small percentage of small businesses (1-2% across most industries) employ the maximum range of 20-499 employees allowed under SBA definitions.

Large corporations often employ thousands of workers across multiple locations, creating a stark contrast with small business employment patterns.

This employment distribution reflects different business models - small businesses often focus on specialized services or local markets, while large companies pursue economies of scale.

Small businesses collectively employ about 47% of the U.S. private workforce despite their lower individual employee counts, demonstrating their cumulative economic impact.

The employment gap between small and large businesses has implications for job creation, economic mobility, and workforce development policies.

Technology is enabling small businesses to compete more effectively with larger companies while maintaining lean staffing structures.

Small businesses face proportionally higher costs per employee due to limited economies of scale in benefits administration, payroll processing, and HR management.

Regulatory compliance becomes complex and costly, including employment law requirements, tax obligations, workers' compensation, and health insurance mandates.

Competition for skilled talent is intense, with larger companies often offering better compensation packages and career advancement opportunities.

Limited financial resources restrict small businesses' ability to offer competitive salaries, comprehensive benefits, and professional development programs.

Administrative burden increases significantly with employees, requiring systems for payroll, performance management, and regulatory reporting.

Seasonal or fluctuating business demands make it difficult to maintain consistent staffing levels without financial strain.

Skills gaps in local labor markets can make it challenging to find qualified candidates, particularly for specialized or technical positions.

The risk of key employee departure can be devastating for small businesses that rely heavily on individual contributors.

These challenges explain why many small businesses opt for contractor relationships or remain non-employer firms to maintain operational flexibility.