3. Nonemployer Establishments in Construction
Establishments without payroll (i.e., nonemployer establishments) constitute the majority of businesses in the construction industry. A nonemployer establishment has no paid employees, has annual business receipts of $1 or more in the construction industry, and is subject to federal income taxes. Nonemployer businesses may operate from a home address or a separate physical location. More than 90% of nonemployer establishments in construction are individual proprietorships or self-employed (see page 22), and the rest are small corporations and partnerships without paid employees.1
In 2012, there were 2.35 million nonemployer establishments in construction, a decrease of more than 11% from 2.66 million in 2007, reflecting the intervening economic recession in the U.S. during this time period.1 In total, there were 2.94 million construction establishments in 2012, including both establishments with and without payroll (see page 2). Even though nonemployer establishments accounted for almost 80% of construction establishments (chart 3a), they produced just 8.5% of the dollar value of business done (see Glossary) in the construction industry (chart 3b).
Nonemployer establishments are more common in Residential Construction (NAICS 2361, see page 1 for industry codes and definitions) and some Specialty Trade Contractor sectors. In 2012, 79% of establishments in Residential Construction had no paid employees (chart 3c). Among the Building Finishing Contractors sector (NAICS 2383), the proportion of nonemployer establishments was even higher (86%). Corresponding to the number of establishments, the proportion of the dollar value of construction work produced by nonemployer establishments was the largest in the building finishing sector — over one-fifth of the dollar value ($25.2 billion of $113 billion; chart 3d).
The proportion of nonemployer establishments varies by state. In 16 states and the District of Columbia, establishments without payroll made up more than 80% of construction establishments in 2012 (in decreasing order: Texas [88%], Tennessee, Mississippi, Georgia, Arkansas, Kentucky, Alabama, Louisiana, District of Columbia, Ohio, Oklahoma, Michigan, New Hampshire, North Carolina, Connecticut, South Carolina, and Missouri; chart 3e). Washington had the lowest proportion of establishments without payroll at 63%, though it has increased from 59% in 1997. Overall, the proportion of nonemployer establishments in construction increased from 74% in 1997 2 to about 80% in 2012.
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Dollar value of business done – From the Economic Census: the sum of the value of construction work done (including fuel, labor, materials, and supplies) and other business receipts (such as rental equipment, legal services, finance, and other non-construction activities).
1. U.S. Census Bureau. Nonemployer Statistics. https://www.census.gov/econ/nonemployer/ (Accessed February 2016). An individual proprietorship is also referred to as a “sole proprietorship,” or an unincorporated business with a sole owner. Also included in this category are self-employed persons. A partnership is an unincorporated business owned by two or more persons having a shared financial interest in the business. A corporation is a business legally incorporated under state laws. These data are from tax return information published by the Internal Revenue Service. The data are subject to non-sampling error such as errors of self-classification by industry on tax forms, as well as errors of response, non-reporting, and coverage. The non-reporting can be due to the underground economy.
2. U.S. Census Bureau. 1997 Economic Census: Industry Summary, Construction Subject Series, https://www.census.gov/prod/ec97/97c23-is.pdf and 1997 Economic Census: Nonemployer Statistics, Core Business Statistics Series, https://www.census.gov/prod/ec97/97x-cs4.pdf (Accessed February 2017).
Charts 3a and 3b – Data cover the private sector only. Detail may not add to total due to rounding. In 2012, payroll establishments totaled 598,065, with 5.7 million employees.
Charts 3c and 3d – Number for each category is a combination of establishments with and without payroll. Data are matched at the four- or five-digit NAICS level.
Chart 3e – Total of 2,346,798 nonemployer establishments ranged from 63% to 88% of the total by state.
Charts 3a-3d – U.S. Census Bureau. 2012 Economic Census. Construction Summary Series. (EC1223SG01) https://www.census.gov/econ/construction.html (Accessed April 2016). U.S. Census Bureau. 2012 Nonemployer Statistics. https://www.census.gov/programs-surveys/nonemployer-statistics.html (Accessed April 2016).
Chart 3e – U.S. Census Bureau. 2012 Economic Census, Construction Geographic Areas Series. (EC1223A1) https://www.census.gov/econ/construction.html (Accessed April 2016). U.S. Census Bureau. 2012 Nonemployer Statistics. https://www.census.gov/programs-surveys/nonemployer-statistics.html (Accessed April 2016).