Small Businesses Cut Staff as Rising Costs, Tariffs and Uncertainty Bite Ahead of Holidays

Small Businesses Face Painful Trade-Offs As Costs Rise

American small businesses are trimming payrolls and pausing hiring even as the holiday shopping season — a critical sales period for many — gets underway. Payroll processor ADP reported that companies with fewer than 50 employees eliminated 120,000 jobs in November, a steep drop employers say reflects mounting pressure from inflation, tariffs, weaker consumer demand and broader economic uncertainty.

Aggregate Numbers, Personal Decisions

Those aggregate figures mask countless individual choices. Some firms have conducted formal layoffs; others have taken subtler steps such as pausing new hires, not replacing departing workers, or reducing hours. ADP Chief Economist Nela Richardson noted that these smaller adjustments are adding up and affecting small establishments first.

“The labor market is not weak but it is weakening, and the first to crack is small establishments,” said ADP Chief Economist Nela Richardson.

Owner Perspectives: Cutting Costs, Protecting Workers

Hanna Scholz, president of Bike Friday, a custom bicycle maker in Eugene, Oregon, said she has not formally laid off staff but reduced headcount from 24 to 21 this year after several long-time employees left for health reasons. Scholz attributed the decision not to replace them mainly to softer U.S. demand, while sales to a smaller, more affluent customer base in Asia have held up.

Stuart Leventhal, owner of Down to Earth Living, a decor and furniture store in Pomona, New York, said he accepted roughly a 10% hit to profits rather than lay off long-tenured employees. He also absorbed some tariff-related costs on largely imported inventory instead of passing them fully to customers.

How Tariffs and Supply Pressures Hit Small Firms

Tariffs and rising import costs are squeezing margins across industries. Lacie Carroll-Marsh, founder of Malicious Women, a craft candle company in Snohomish, Washington, said jars and packaging imported from Taiwan now face a 20% customs tariff imposed at the wholesale level. She also reported domestic soy wax costs up about 12% year over year, a rise she was told is partly linked to plantings and labor disruptions on farms.

Carroll-Marsh has laid off 17 of 31 employees this year and said the cuts have been emotionally wrenching. She pays average wages of about $24 an hour, with some workers earning up to $30, and said she is unwilling to reduce pay to retain staff.

Health Insurance and Policy Effects

Rising employer health insurance costs are another pressure point. Carroll-Marsh said her monthly employer contribution per worker will jump from $728 to about $1,400 starting in February, a rise she attributes in part to the scheduled expiration of certain Affordable Care Act subsidies at the end of the year. Without those subsidies, premiums and employer costs for coverage are expected to rise for many firms.

Government data cited in the reporting include Department of Homeland Security estimates that more than 527,000 undocumented immigrants were deported through October and that roughly 1.6 million people voluntarily left the United States since January. The U.S. Department of Agriculture reported that as of 2022 more than 40% of hired crop farmworkers were undocumented, complicating efforts to quantify labor impacts in agriculture.

Politics, Blame and Outlook

As business owners grapple with immediate choices, political groups and officials have traded blame. Advocacy groups such as the Main Street Alliance pointed to trade policy, healthcare changes and tax priorities as contributors to small-business strain. White House and administration officials described recent weakness as short-term and highlighted tax and regulatory policies they say benefit small firms.

What Owners Face Going Forward

For many small-business owners, the decisions are wrenching and immediate: protect employees and accept slimmer margins, or reduce staff to preserve the company’s financial stability. With holiday sales a make-or-break period for some, these choices will help determine which businesses weather the next year.

Note: All figures and quotations are drawn from payroll firm ADP, interviews with small-business owners, and government data cited in the original reporting.