Steve King, Emergent Research partner and a regular contributor to SmallBusiness.com explains how the U.S. government is underestimating the economic impact of small businesses by excluding the self-employed when collecting and classify small business data. (Background: “Why ‘Non-Employer Businesses’ are a Big Deal, Even if the Label Sounds Like They Aren’t.”)

Over the past three decades, companies that were less than one-year-old with one to four employees averaged creating more than one million jobs per year.

That’s a lot of jobs.

But the number would be much higher if the government included the economic impact of the self-employed, or “non-employer business,” the label used by the IRS to describe freelancers or other types of independent workers.

The decision to collect the data this way happened decades ago; long before the rise of contingent talent and the growing ability to hire contractors through online on-demand talent marketplaces.

A growing trend we see is a new form of job creation where one independent contractor (a non-employee business) hires another freelancer or independent contractor. Because both individuals are defined “non-employee business,” data on their activity is not included in most analyses of the small business sector.

Because of the growing availability of freelance talent, there are millions of such one person small business* who are hiring others on a contingent basis. But, to say it again, today these firms are not considered employer small businesses and not included in most analyses of the small business sector.

We think this is leading to an undercounting of small businesses and a distorted view of the real impact on job creation and the economy of small businesses, a topic we will continue to explore.

(A version of this article also appears on Small Business Labs.)

*Editor’s note | We agree with Steve and suggest a good start would be to encourage the adoption of a label other than “non-employee business.” We prefer a term that describes what the individual is, rather than what they are not. Because the term “small business”  has statutory meaning and is a brand favored by consumers, SmallBusiness.com has chosen to use  “one-person small business” in our editorial guidelines.

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