Lower pay seen for U.S. small business employees

NEW YORK (Reuters) - Small U.S. business employees, whose earnings eroded in 2008, can expect to earn even less this year as competition grows for jobs, according to a company that processes paychecks for more than 20,000 small businesses on Tuesday.

Average small business paychecks dropped by 3.1 percent nationwide in 2008, according to SurePayroll. The decline was steepest in the U.S. South, where pay fell 9.2 percent, in part reflecting the effects of the Florida housing bust.

The decline in salaries for employees of small businesses accelerated in each of the past four quarters, SurePayroll reported. It said the average small business worker earns $31,600 a year.

"I wouldn't be surprised if we saw another 3, 4 percent decline for the year," SurePayroll President Michael Alter said. "You've got a lot more workers out there looking for jobs, and that depresses wages."

Several factors are driving up the supply of labor, Alter said. Large companies are laying people off, more people who previously worked part time or stayed at home are entering the workforce, and older workers are delaying retirement.

Meanwhile, more small businesses -- defined as anywhere from one to 100 employees -- are employing contractors to avoid payroll taxes and benefit costs. Use of contractors was up 8.3 last year, the largest increase since 2004. About four in 100 small business workers are now independent contractors.

The bulk of U.S. small businesses have fewer than 10 employees.

(Reporting by Nick Zieminski; editing by Richard Chang)