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What Are Non-Farm Payrolls?
Reading the news to stay informed, you may have come across the term “non-farm payrolls”. This refers, essentially, to all American workers not involved in agricultural work. Non-farm payrolls measure the total number of US employees excluding farmers, as well as a few other lines of work.
The Bureau of Labor Statistics (BLS) gathers these statistics every month and includes them in their monthly Employment Situation report, available to the public here.
Categories Excluded from Non-Farm Payrolls
In addition to farm workers, several other categories of workers are also excluded from non-farm payrolls. These are:
- Certain government workers – This includes military employees, people employed by government-appointed officials, employees of the CIA, National Security Agency (NSA), Defense Intelligence Agency, and the National Imagery and Mapping Agency.
- Sole proprietors – Those with a business that’s not a registered business entity, or who is self-employed in any way, such as a freelancer, is excluded.
- Household workers – Those who work for a private household, such as a housekeeper or gardener, are excluded.
- Non-profit employees – Employees who work for non-profit organizations are excluded.
A Closer Look at the Employment Situation Report
The Employment Situation report is a key economic indicator and thus closely watched by analysts. It consists of two surveys – the Household Survey and the Establishment Survey.
The Household Survey measures unemployment in the U.S, and includes:
- Unemployment rate
- Unemployment rates by gender
- Unemployment rates by race
- Unemployment rates by education
- Unemployment rates by age
- Reasons for unemployment
- Employment data by types of alternative employment
- Participation rate (percentage of people that are in the labor force)
The Establishment Survey includes the following measures of non-farm payrolls:
- Total number of nonfarm payrolls (workers) and the number added that month
- Number of non-farm additions by industry category: durable goods, non-durable goods, services, and government
- Detailed information on hours worked
- Detailed information on average hourly earnings
Why the Report Matters
Analysts rely on the Employment Situation report as an indicator of economic health and to predict future economic performance. It’s also widely watched by stock market analysts, as macro-economic predictions often impact the outlook for stocks and commodities.
The report also gives important data by sector, which can be predictors of how those sectors will perform in the coming months. Unemployment data and rates from the Household Survey are clearly important to analysts, as rising unemployment often signals a slowdown.
Broadly speaking, the Employment Situation report, of which non-farm payrolls are a key part, is an invaluable indicator that can predict future economic trends and shape government policies. As an entrepreneur, it’s a good idea to keep an eye on it.
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