Six in ten small business owners report increasing wages to hire and retain workers but worry higher costs are "not healthy business-wise," according to new data from SCORE, a resource partner of the U.S. Small Business Administration. To maintain profitability and employee satisfaction, entrepreneurs are finding compensation isn't the only solution.

SCORE's Spring 2023 Megaphone of Main Street: Employee Engagement report surveyed more than 1,500 small business owners on employee-related challenges in today's competitive environment, including the impact and cost of disengaged employees.

"The key to retaining good employees seems to be higher wages, which then results in higher costs that are not healthy business-wise," said SCORE client Claudia Marquez, president of Tacotote in Albuquerque, N.M. "It truly seems that the focus is on employees getting higher pay, without considering small business survival."

Moving forward with a plan

While small business owners are more optimistic now than pre-pandemic, more than half (59.2%) still feel that employee-related challenges will continue for at least another year. In the face of these challenges, small business owners are taking action.

In addition to increasing wages, they are:

• Building connections to their company culture, mission and values (46.2%)

• Offering professional development and training opportunities (41.3%)

• Providing bonuses and/or profit sharing (39.2%)

• Incorporating flexible and/or remote work options (36.8%)

"There is a limited number of employees to draw from these days, and they don't want to work any more than they need to," said SCORE client Owen Faulkner, owner of Town & Country Heating and Cooling Co. in Bucyrus, Kan. "With not as many people coming into the trades, we are treating our existing employees better to help retain them."

Alongside wages and professional development, some small business owners have utilized other programs to retain their employees, including health and wellness programs (12.5%), diversity, equity and inclusion programs (5.7%) and childcare benefits (4.3%).

Signs of improvement

Employment numbers have steadied, with just 17.5% of businesses reporting having fewer employees compared to the previous year. That's down from 2021, when 26.8% of small business employers reported smaller staff.

"The pandemic brought challenges with hiring and retention for a multitude of businesses,but entrepreneurs excel at exercising creativity and flexibility when they need to do more with less," said SCORE Vice President of External Relations Betsy Dougert. "By capitalizing on their innate strengths, small business employers can motivate and inspire their existing teams, attract new talent and grow to new levels of success."