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How to Overcome the Small Business Labor Shortage

June 21, 2021
Written by Nextdoor Editorial Team
June 21, 2021 | Written by Nextdoor Editorial Team

Small businesses already weakened by the economic uncertainty of the COVID-19 pandemic are facing a new dilemma: a staffing crisis. According to the National Federation of Independent Business, a March 2021 survey found that 42% of small business owners had jobs they couldn’t fill - a record high. 

With consumer spending on the rise (5% increase in March 2021) and vaccinated customers flocking to physical storefronts, the need for qualified staff is increasing in tandem.

Read on to learn more about the causes of the current staffing crisis and how small businesses can tackle this worker shortage.

Why Is There a Labor Shortage?

Facing the challenges of filling open positions, many small business owners are speaking out about how this staffing shortage affects their bottom line.

  • The owner of Vanille Patisserie in Chicago, Sophie Evanoff, is facing the worst-case scenario of a staffing shortage: the inability to turn a profit.  Evanoff has 20  employees but needs about ten more. Because she has been unable to fill these open roles, Evanoff must turn down orders and can’t reopen her second location.

  • Matt Glassman, the owner of The Greyhound Bar & Grill in Los Angeles, is battling this labor shortage too. According to Glassman, potential candidates schedule interviews but never show up. When he is able to  find employees, he struggles to retain them. A recent hire left before he even began his training at The Greyhound Bar & Grill.

Possible Reasons for the Labor Shortage

Multiple factors are creating the current labor shortage that small business owners like Glassman and Evanoff face, including:

  • Unemployment Benefits – In an interview with Business Insider, Toby Malara, the government affairs counsel at the American Staffing Association, emphasized that some employees have been making four to six dollars per hour more on unemployment insurance than their original wage.

    However, it’s important to note while unemployment benefits could be impacting the staffing shortage, it may not be the biggest cause. A recent study by the Federal Reserve Bank of San Francisco discovered that only one in seven workers were not taking jobs due to their unemployment benefits. The study concluded that unemployment benefits had just a “small yet noticeable effect” on the labor shortage. 

  • Business Capacity– According to CNBC, tip-based employees might be hesitant to return to work because local regulations and reduced capacity can decrease their already uncertain wages.

  • Health Anxiety– Even as vaccinations increase and transmission decreases, The Census Bureau found that 3.9 million Americans have not returned to their jobs because of fears of catching or spreading the coronavirus.

  • Domestic Responsibilities – CNN estimates that almost 7.3 million adults cannot work because they are at home caring for children whose schools and daycares are still closed. Business Insider notes an additional 2.1 million Americans who can’t return to the workforce because they are at home caring for elders.

  • Low Wages– CNN found that many job seekers are encountering positions that pay too little, are too far away, or require skills and certifications they don’t have. As major companies, like Costco, Target, and Amazon raise their minimum wages, former employees might be less willing to accept lower wages at local small businesses.

  • Smaller Workforce Kurt Alstede of Alstede Farms in New Jersey usually hires a mix of seasonal workers including college students and migrant workers. Virtual learning forcing students to stay home and visa issues have reduced Alstede’s usual input of seasonal employees.

The current worker shortage is a result of multiple converging factors that vary in magnitude based on region and industry. If you're having difficulty finding the help you need for your small business, there are several approaches to consider.  


Staffing Shortage Solutions

2021 isn’t the first year Americans have dealt with a potential labor shortage, and it likely won’t be the last. In 2018, the state of Wisconsin began to prepare for a prospective labor shortage of 45,000 workers by 2024. Fortunately, there are already tried and true tactics to address a staffing crisis head-on, including:

Enhancing The Employment Appeal 

Your employees define your company culture. By offering enticements like higher wages and job flexibility, you can attract high-quality applicants to create a culture of respect and mutual support. 

  • Higher Wages Major companies like Under Armour, Amazon, McDonald’s, Costco, Walmart, Chipotle, and Bank of America all recently raised wages to retain qualified workers. Increasing employee wages is the most straightforward way to attract new hires, but struggling small businesses don’t always have room in their budget for this labor cost.

  • Better Benefits – If you’re unable to offer a higher wage, attract candidates with better benefits such as paid time off, signing bonuses, growth and training opportunities, maternity or paternity leave, and more. These benefits will make your future hiring process easier as well because happy employees will tell others about your excellent company culture.

  • Modern Management – Higher wages and better benefits aren’t the only perks you can offer potential employees. Modernize your management practices to keep current employees happy and retain new hires. This can include everything from creating a more flexible work schedule to offering visibility on business growth. However, you decide to modernize your business keep in mind two pieces of advice: Focus on transparency and trust and know that establishing a culture of respect is priceless.

  • Job Flexibility – Part of the reason for the current staffing crisis is that workers have increased responsibilities at home. Whether it’s a sick relative or child stuck at home with virtual learning, workers still face multiple barriers to rejoining the workforce. Reduce these barriers by offering increased flexibility with scheduling and time off. 

  • Job Requirements – Rethink the job requirements from the job posting to the day-to-day work. Redefine what makes a qualified candidate. Are there required skills that can be easily taught on the job? Don’t narrow your pool of potential hires unnecessarily. Once you’ve hired new employees, reduce administrative tasks so employees can focus on their core duties without becoming overworked and overstressed.

Rework Your Hiring Approach

When it comes to increasing your staff, it can help to redefine how you approach the entire hiring process.

  • Paid Intern Programs – Your local small business is like a family. Consider adding a new addition by welcoming an intern into the fray. Economic uncertainty and shifts in the labor market also affect high school students, college students, and even recent grads who need relevant job experience. A marketing or business development intern can make your job easier while also supporting local youth. Make sure to review regional internship requirements and laws as you design the internship program.

  • Hiring Process – Consider revamping your hiring process from start to finish. Write a creative and personalized job ad that will attract qualified candidates faced with a range of employment options. Increase your communication and clarity at every step of the hiring process. Put your best foot forward during the interview process and highlight your enthusiasm and what makes your small business an exciting workplace. 

Reach Out Across Your Networks

Your business depends on your community—by reaching out to your in-person (and digital) networks, you can expand your staffing opportunities enormously. 

  • Post on Nextdoor – As a small local business, you need hires within your immediate vicinity. What better way to find these potential candidates than with Nextdoor. Nextdoor connects you directly to the neighborhood, allowing you to find verified neighbors and communicate with them. Once you have your Business Page set up, you can start finding new hires by creating a Business Post. 

  • Employee Network – Your employees are your greatest advocates. They can speak to your generous benefits and compassionate management style. Ask your employees to utilize their own networks to find new hires. Offering a referral commission will incentivize your employees to connect you with qualified friends and family. 

  • Social Media – Most small businesses already have a digital presence to interact with and find new customers. Social media platforms can help you spread the word about job openings. 

  • Local Partners – High schools, colleges, after-school programs, nonprofits, and other local organizations all want to partner with small businesses looking to hire new talent. Reach out to these organizations to distribute your job ads and enrich the partnership by offering free workshops and training.

Labor Shortage Solution Case Studies

As you create a plan of action to address your labor shortage, it can help to look to others’ experiences for inspiration.

Creating A More Understanding Workplace

Raygun, a small clothing and design shop approached the staffing problem heart-first. The pandemic made owner Mike Draper more attuned to his employees’ needs for sick leave and time off when a family member is ill or in crisis. As a result, Draper completely overhauled his paid time off policy to be far more lenient, including paid time off for personal issues, guaranteed sick time, and created a culture of leniency. 

“It’s tough if you have a family crisis and you need to deal with that and you have an employer that says, ‘If you leave to deal with that, you’re fired,’” Raygun’s Draper explained to The Washington Post. “We provide an environment where people don’t find themselves in that situation,” he said. “Work doesn’t have to be intractable.”

Support for the Future

From signing bonuses to increased hourly pay, financial incentives are a no-brainer when it comes to addressing the hiring shortage. But one test-prep company decided to take their mission of education one step further with student loan assistance for their employees.

Test Prep Insight, a small test prep business, decided to take advantage of Section 2206 of the CARES Act, which created a temporary tax-free provision for employer student loan assistance programs. Through the program, an employer can make up to $5,250 in student loan payments for an employee within a year. Those payments can be made directly to an employee or directly to the lender and are considered tax-free. 

That means:

  • An employee doesn’t have to pay income taxes on $5,250 of this benefit
  • The employer gets a payroll tax exclusion on those funds

Even better? This benefit has been extended until December of 2025. 

Insight Test Prep’s HR Director Janelle Owens saw a huge benefit of utilizing this particular incentive program in their hiring efforts:

“We have found it to be a powerful offering that really moves the needle for job candidates and current employees. Many new grads feel buried financially by their student loans, so having the opportunity for their employer to pay north of $5,000 per year towards their loans is huge."

She even mentions that for her younger employees fresh out of academia, this benefit meant more to them than their health benefits. 

Taking A Bite Out of Labor Shortage

Restaurateur James Mallios implemented a straightforward solution to decrease a potential staffing shortage in his three New York City restaurants. Over the past three years, Mallios added an eighteen percent administration fee to replace customer gratuity.

Mallios' rationale was simple: “In what world does someone accept a job where they get a 50% or more swing in compensation from week to week?” 

This administrative fee allows Mallios to pay his staff a consistent rate between $20 and $55 an hour. By replacing standard tips with this administration fee, Mallios minimizes the factors that affect restaurant wages normally. Since June 2020, Mallios has kept between 40 and 50 employees, and as of May 2021, he’s even hiring new staff.  

Mallios successfully identified a major factor that impeded his hiring process and employee retention—the unreliability of tip-based wages—and engineered a solution without significantly increasing his overhead costs.

In Arizona, Skyler Reeves, who owns six restaurants, lost many employees to larger retailers like Costco at the beginning of the pandemic when he first closed. Now that his restaurants are open, he has struggled to hire new employees because unemployment benefits are more enticing than strenuous service jobs with uncertain, tip-based wages. As a solution, Reeves is offering tuition reimbursement at a local community college to full-time employees. He now has more than 20 applications.

Follow Mallios’ and Reeves’ lead and consider the unique challenges of hiring and employee retention in your industry and neighborhood as well as solutions that match your budget and capabilities.

Connect with Potential Employees and Customers

With luck, the current labor shortage will dissipate as the economy returns to a post-COVID normal. Until then, think creatively about your solutions to overcoming this staffing shortage as a small business.

This includes relying on your neighbors and the local community to offer their support. Join Nextdoor to connect with potential employees and prospective customers and weather this storm together, as a community. 


AP News. US consumers boosted spending in April as inflation surged. 

CNBC. As small businesses recover from the pandemic, they face a new obstacle: finding workers. 

Business Insider. 4 things that might explain the labor shortage hitting the reopening American economy. 

CNN. Are unemployment benefits causing working shortages? Here's what we know. 

PBS. How Wisconsin is trying to head off a major worker shortage. 

CNN. The fastest way to fix a labor shortage: Pay more. 

CNN. Restaurant owner makes big offer to lure workers. 

The Washington Post. These businesses found a way around the worker shortage: Raising wages to $15 an hour or more.

Forbes. Student Loan Repayment Assistance Is Becoming A Popular Benefit.


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Claim your free Business Page to get started on Nextdoor. For resources on how to use Nextdoor to stay connected with your local customers, pertinent news affecting business, and more, follow us at @nextdoorbusiness on Facebook

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