About Us Global insights Against economic headwinds, SMBs double down on workforce commitment

Against economic headwinds, SMBs double down on workforce commitment

Despite record-low business confidence and economic concerns, employers are committed to maintaining and growing their workforce in 2025.
A day in the factory, workers and managers with tablets and clipboards in hard hats smiling in conversation.
Headshot of Kara Hoogensen.
Kara Hoogensen
Senior vice president and head of workplace benefits

2 min read |

The first half of 2025 hasn’t been business as usual for most companies, especially for small and midsize business (SMB) owners. Trade-induced macroeconomic uncertainty, along with persistent global conflicts, have complicated both short- and long-term planning.

But our latest Principal Financial Well-Being IndexSM, based on an April survey of 1,000 employers, reveals a striking paradox: While business confidence has dropped to its lowest level since November 2020 (measuring just 6.02 on a 10-point scale compared to 7.8 a year ago), employers are maintaining—and in many cases increasing—their commitment to staffing.

58% Cost of health care

56% Economic inflation

55% Stability of the U.S. economy

51% Cost of offering benefits

50% Potential for a recession, stability of global financial system, and market volatility (three-way tie)

The data tells a compelling story (PDF): Only 16% of employers believe the U.S. economy is growing (down 24 points from June 2024) amid widespread concerns about:

  • Inflation (55%)
  • Economic stability (55%)
  • Recession (49%)

Yet an impressive 90% of businesses are either maintaining—or growing—their workforce.

This isn’t just about maintaining headcount—it’s about investing in people. To quote one business leader from our study: “In 2025, we’ve focused on optimizing employee retention and benefits offerings to remain competitive in a tight labor market. We adjusted compensation packages, expanded remote work flexibility, and invested in wellness initiatives to boost engagement and reduce turnover.”

This commitment to workforce investment reflects a crucial lesson learned during the pandemic: the tremendous cost of and difficulty in rebuilding a workforce once it’s lost. Rather than repeat the rehiring challenges of 2021–2022, businesses are choosing to protect their most valuable asset—their people.

The Well–Being Index shows that while 58% of businesses cite rising healthcare costs as a top concern, and 51% worry about the cost of providing employee benefits, they’re finding creative ways to maintain these critical offerings. Instead of cutting benefits or reducing staff, companies are:

  • Implementing other cost-control measures
  • Streamlining operations
  • Reducing discretionary spending in areas like travel and events

This strategic pivot represents a fundamental shift in how SMBs approach economic uncertainty. Rather than viewing benefits as a cost center to be cut during challenging times, they’re seeing them as an important investment. It’s a recognition that maintaining a stable, engaged workforce is essential for weathering economic storms and positioning for future growth.

Rather than viewing benefits as a cost center to be cut during challenging times, they’re seeing them as an important investment.

For those of us in the group benefits space, this presents both an opportunity and a responsibility. We must continue innovating to provide flexible, cost-effective solutions that help SMBs maintain relevant benefits packages. The market is clearly telling us that benefits aren’t just nice to have—they’re crucial for workforce retention and engagement, and, ultimately, business stability.

This commitment to workforce investment may well prove to be the key to helping resilient SMBs navigate through current economic challenges and emerge stronger on the other side.

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Protecting my business

Principal® Business Owner Insights

Small to midsize business (SMB) owners are offering benefits and solutions at record levels, indicating that benefits help improve recruiting, retention, and employee productivity.

The Principal Financial Well-Being Index℠ (WBI) Wave 1 (April 14–25, 2025) is recurring research used to track sentiment around repeated financial health measures and timely issues relevant to businesses.

Business owner, decision maker, and leader participants who represent companies with 2–10,000 employees (n=1,000) provide information by completing a 15-minute online survey. Access to sample is provided by ROI Rocket, a third-party research panel provider.

In 2025, the WBI added a formal index. The index number in the WBI is calculated by taking responses from six perceptual measures evaluating current financial health, financial comparisons year over year, and projections for business and economic outlook. The percentages of respondents who answered positively for each measure are averaged and standardized to a 0–10 scale, with perceptions of business/company, local economic, and U.S. economic growth weighted 60%, 20%, and 20% respectively within their aggregate measure.

Small businesses = 2–499 employees

Large businesses = 500–10,000 employees

Insurance products issued by Principal National Life Insurance Co (except in NY) and Principal Life Insurance Company®. Plan administrative services offered by Principal Life. Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc. Securities offered through Principal Securities, Inc., member SIPC and/or independent broker/dealers. Referenced companies are members of the Principal Financial Group®, Des Moines, IA 50392. ©2025 Principal Financial Services, Inc.