Small businesses are giving out more bonuses and even tripling them in size, and it’s still not solving the labor shortage

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Small businesses are offering more and bigger bonuses in the face of the ongoing labor shortage.Gusto, a small- and medium-sized business payroll firm, found the average bonus size tripled over the last year.Such one-time incentives have so far made little dent in the persistent labor shortage.The labor shortage is still going on, and businesses are doing their best to keep around the staff they have in addition to finding new workers to fill open roles.

But quits are still high in the US and the labor force participation rate is still below the pre-pandemic rate.The most recent data from Bureau of Labor Statistics showed 4.2 million quits in October, just slightly down from the record 4.4 million in September.That means there have been over 38 million quits in 2021 so far.

Gusto, a small- and medium-sized business payroll company, has even more information.Based on the platform’s data, the quit rate was 3.4% in November, 0.2 percentage points less than October’s rate.

Additionally, Gusto found 3.7% of women quit their jobs in November, higher than 3.1% of men who resigned that month.

Even though many businesses have tried wage increases as one way to find workers amid a shortage, many have also turned to retention and signing bonuses.

“These bonuses are an effective option for business owners who, uncertain of the future path of the economy, may be wary of permanently raising wages today,” Luke Pardue, an economist at Gusto, told Insider in an email.

Gusto’s data highlights just how large the average size of bonuses — both retention and signing bonuses — given out at businesses are amid a labor shortage and the “Great Resignation.”

“On Gusto’s platform, 14% of all paychecks included a bonus, compared to 11% in November 2020 – and the average size of that bonus has more than tripled, from an average of $552.06 in November 2020 to $1,674.78 in November 2021,” Gusto wrote in a post.

The following chart, using data from Gusto, which runs payroll and benefits for over 200,000 small- and medium-sized businesses, highlights just how large the average bonus size was and how they have grown year-over-year:

That average size of over $1,000 hasn’t been seen since April 2021, where it was $1,273.Year-over-year percentage growth in March and June was higher than that in November, but still the data shows just how big the bonus compare to November last year as well as in the past few months.

Pardue doesn’t see the use of bonuses going away right now.

“Given that these financial incentives are driven by workers’ power in the labor market today, the prevalence of bonuses will remain at elevated levels as job openings are likely to remain high and workers continue to explore new career opportunities,” Pardue said in an email.

Bonuses alone may not solve the labor shortage or the high number of quits Businesses are doing things like giving out bonuses to current employees, increasing wages, and highlighting one-time signing bonuses in job descriptions.But bonuses may only go so far to bring up the labor force participation back to where it was before the pandemic.

The labor force level of prime-age workers, ages 25 to 54, is still below where it stood before the pandemic.

As of November, the level is 1.1 million below the number in February 2020.

There are many potential reasons for a labor shortage right now, ranging from people wanting higher pay to interests in job flexibility.Businesses may offer signing bonuses to help bring people back into the labor force and into their workplace, but these temporary bonuses may not be enough to attract workers.

“If difficulty in hiring will persist for years, then employers need to think long-term — for example, shifting from offering temporary hiring bonuses to permanent wage increases,” Daniel Zhao, senior economist at Glassdoor wrote in a new report on workplace trends for next year.

So although bonuses may be a plus to find some workers, it alone may not cut it to fix the labor shortage.

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