How Small Business Owners Can Successfully Navigate the Labor Shortage

In what has been dubbed the "Great Resignation," a record number of workers have left their jobs in recent months. According to the U.S. Bureau of Labor Statistics, 4.3 million Americans, constituting 2.9 percent of the entire workforce, quit their jobs this past August. The result has been a U.S. labor shortage affecting companies across every industry.

For small businesses, a skilled labor shortage can have resounding effects, as the owner of True People Search has experienced. Marilyn Gaskell, the founder and hiring manager of the U.S.-based tech background checking site, is dependent on all 20 of her employees to effectively run the business.

“Every employee is crucial to my company, as only one to two employees are running each of the business units,” says Gaskell. “If an employee resigns, the business is significantly disturbed. Unfortunately, the ‘Great Resignation’ hit my company. Two employees left without any prior notice, which led to a labor shortage."

Gaskell found it initially challenging to cope with the loss of employees. "I took charge and handled that business unit until recruits were obtained," she says. "Meanwhile, I devised many strategies to ensure that employees stay with the organization, including setting up a hybrid work system.”

In order to successfully navigate the labor shortage, it helps to understand the root causes. 

Why Is There a Labor Shortage in the U.S.?

One reason for the U.S. labor shortage stems from the effects of COVID-19, according to John Waldmann, CEO and founder of Homebase, a business management platform. His company keeps a close eye on business trends.

“The pandemic impacted the labor market in the short- and long-term,” says Waldmann. “In the short-term, people removed themselves from the job market for health concerns. This number has reduced as the vaccine rate has gone up. Secondly, there were many people at home due to childcare requirements. This number has reduced as schools reopened in the fall.”

Long-term effects include many people deciding to take early retirement and lower immigration rates. Additionally, many former employees report enjoying the freedom and convenience of working from home, which has caused them to rethink their employment and lifestyle.

While the COVID-19 pandemic has undoubtedly contributed to the labor shortage, some believe it is just the catalyst for a movement that was brewing under the surface for some time.

"The economy has continued to thrive for years, creating an ever increasing demand for technical workers," says Clay Kellogg, CEO of Terminal, a tech remote work support company that provides engineering support to companies. "At the same time, we have had a skilled labor shortage for decades, and we've known for a while that there would be a cliff once the Baby Boomer generation decided to retire. Yet there still is a lack of apprenticeship opportunities in skilled services roles," he says. 

"Employees have also struggled with unfulfilling work, stagnating wages and jobs that lack basic benefits," adds Kellogg. "Fast forward to now, and company owners are reconsidering pay ranges, and in many cases boosting offers to make them more attractive to job candidates."

How Can Small-Business Owners Manage the U.S. Labor Shortage?

Replacing employees who have left their jobs is currently a challenge for many small-business owners. In fact, according to the monthly NFIB Small Business Jobs Report, “unfilled job openings remain at unprecedented levels” as of the survey conducted in September 2021.

The report reflected a random sample of 10,000 small-business owners/members and found that “small business owners continued to struggle to find workers to fill open positions in October with 49 percent (seasonally adjusted) of all owners reporting job openings they could not fill in the current period.”

Given that hiring is a challenge, here are some ways SBOs are doing their best to retain employees. 

1. Embracing remote and hybrid work.

Many employees experienced an increase in work-life balance over the pandemic due to working from home, and they want to continue along this vein.

“We’ve found that many of today’s employees want a remote work situation, so we have embraced the hybrid work system,” says Gaskell. “Flexible working hours were also introduced so that employees can work at times they think are most suitable for them.”

2. Updating and enhancing the company pay and rewards system.

Rewarding employees for their service in a holistic manner beyond competitive salaries and benefits is now a necessity, believes Kellogg.

"Many businesses are waking up to the new rules, which require critical foundational pieces of the employee experience, including investment in the total employee experience, such as better pay and benefits, tools and policies supporting workers’ mental health, and learning and development programs for workers," says Kellogg. “Home office stipends, mental health benefits and internet subsidies are just a few of the benefits employees now expect for their loyal service.

"Now is also the time to consider how your salaries stack up to competitors and ensure employees are actually using the benefits you offer," continues Kellogg. "Consider recalibrating your pay ranges on a quarterly basis."

3. Spotting and encouraging struggling or disengaged employees.

Nunzio Ross, owner and head director of Majesty Coffee, has found that being hyper-observant with employees can head off a possible employee resignation.

“I approach disengaged employees when they’re feeling at ease to see what the problem is,” explains Ross. “For instance, after a casual virtual hangout, I asked for a moment with an employee and discovered that the person felt sidelined. After I made arrangements to deal with the situation, the employee became more participative and motivated and the team remained productive.”

4. Offering employees support.

By providing access to a robust support system in the workplace, you let your employees know they are valued. “Now more than ever, employees need motivational and mental health programs to cope with the changes in the workplace,” says Ross.

"One way of making mental health resources available is their inclusion in the overall health care plan offered by your company, which removes insurance restrictions, as with other medical conditions," continues Ross. "At the same time, setting up an employee assistance program that includes motivational and mental health support gives employees confidential access to professionals."

5. Providing for upskilling.

Employees may leave positions for more challenging and empowering work when they feel they’ve reached a ceiling in their current jobs. By providing upskilling opportunities that can lead to promotion, such as further training and development, you show employees the company cares about their long-term growth. Encourage an ongoing open dialogue focused on ensuring employee career goals are being met.

How to Fill the Gaps when Employees Leave

Given that the holiday season is approaching, you and your existing employees will likely be working longer hours than usual this year. To offset this reality, consider offering bonuses and look to ways that you can further reward employees and yourself in January when things slow down.

Many business owners, such as Gaskell, are finding that they must redistribute responsibilities to get the job done. This includes owners themselves taking on certain responsibilities until new employees are hired and onboarded.

In the interim, many small-business owners are also hiring contractors and freelancers to pick up the slack. Many companies have also become more open to part-time and contract work, even if it means redesigning traditional positions.

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