In the past, we’ve been extremely precise in explaining why we believe small business is the term best used to describe a small business. One reason is that terms or acronyms other than “small business” weaken the “institutional brand” of the second most trusted institution in the United States. However, the most important reasons are ones we’ve explored before that are related to the importance of knowing whether the people who work with you are employees or independent contractors.


Independent contractor or nonemployer businesses?

Here’s the first thing you need to know: Independent contractors and nonemployer businesses are the same things. Most U.S. government agencies use the term “small business” exclusively, like the Small Business Administration and congressional committees. The U.S. Code of federal statutes (where all the laws are stored) contains the term “small business” 1,034 times. “Nonemployer” is found only once there.

Terms like microbusiness or biz or independent contractor or freelancer are mentioned nowhere in the tax code but show up occasionally in IRS guidelines.

The agency that uses it most (in our unscientific research) is the U.S. Census Bureau who use the term “nonemployer business often.”

Recently, the Small Business Administration’s Office of Advocacy put out a “fact sheet” on the topic of nonemployer businesses. We can understand how their usage helps clearup some confusion, but believe that using the term “nonemployerbusiness” only adds to the confusion.


How the U.S. Census Bureau defines a “nonemployer” business

According to the SBA Office of Advocacy fact sheet, here is the definition of a nonemployer business “derived from administrative record sources”:

“A business that has no paid employees, has annual business receipts of $1,000 or more ($1 or more in the construction industries) and is subject to federal income taxes. Most nonemployers are self-employed individuals operating very small unincorporated businesses, which may or may not be the owner’s principal source of income.”


40% | Percentage of nonemployer businesses that are the primary source of income of their owners
20% | Percentage of  nonemployer businesses in which the owner spends between 20 – 40 hours a week
50% | Percentage of  nonemployer businesses in which the owner spends less than 20 hours a week
30% | Percentage of nonemployer business owners who spend 40 hours a week on the business

80% | Percentage of all businesses that are nonemployee business

15.4 million | Nonemployee businesses in 1997
24.3 million | Nonemployee businesses in 2015

58% | Growth in the number of nonemployee businesses
6% | Growth in the number of businesses with employees since 1997

The chart above reveals that the number of net non-employer businesses has been growing about 2% a year during the past 15 years, reaching 25 million in 2016. Steve King, a partner in Emergent Research and a regular contributor to SmallBusiness.com, explains some possible reasons for the disparity in the growth.

  • It’s easier and cheaper to start and operate a non-employer business today.
  • More people are starting part-time businesses to supplement their income or pursue a passion
  • Small businesses no longer need to hire traditional (W2) employees when they can use contract labor, outsourcing, freelancer and automation.

So what’s wrong with the term “nonemployee business”?

Frankly, it’s not a big deal except for a few folks like me. Many years ago in a book I can’t recall, I read a comment that has stuck with me for decades:

Rarely does great marketing come from telling the customer what a product isn’t. Of course, there are a few exceptions that prove the rule: de-cafe coffee, mirrorless cameras, smokeless tobacco. On the other hand, there are positively names that fail, like Google+.

So what should the name be, if not nonemployee business?

Again, when compared to all issues small businesses face, this is the least one you’ll encounter (unless you run int the buzzsaw with the IRS over an issue related to employee vs. contractor. However, I think “nonemployer business” is government agency gobbledegook.

What about the term, “One-person small business.”?

Do you have a suggestion? Share it on Twitter with the hashtag #OnePersonSmallBusiness

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