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Nonemployer Statistics

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How the Data are Collected (Coverage and Methodology)

THE NONEMPLOYER UNIVERSE

The universe of nonemployer firms is created annually in conjunction with identifying the Census Bureau`s employer business universe. When the Census Bureau receives information through administrative records that a business has no paid employees, then the business becomes part of the potential nonemployer universe. Name, address, industry classification, and receipts are available for each potential nonemployer firm as the data are compiled. The source of this data is primarily from the annual or quarterly business income tax returns filed with the Internal Revenue Service (IRS) and maintained in the Census Bureau's Business Register.

The potential nonemployer universe is edited and reviewed to detect and remove firms that are not true nonemployers. Among the largest group of removed firms are those establishments that are associated with large, multi-unit companies, but did not have well documented links to the parent company (for a description of how multi-unit companies are handled on the Business Register, refer to the County Business Patterns methodology). Another group of records removed consists of income from records for regulated investment companies, representing mutual fund income. The Census Bureau does not include these as nonemployer firms because their income is generally not viewed as being nonemployer income.

Maximum and Minimum Receipts Cutoffs

The Census Bureau excludes firms with receipts above a predetermined cutoff. The logic for limiting receipts to a set maximum amount assumes that the highest receipts are actually part of the employer universe and should not be duplicated in the nonemployer data. For corporations and partnerships this cutoff is $1 million in receipts, except for service-type industries, where the cutoff is $2 million in receipts. For sole proprietorships, the cutoffs are tailored specifically depending on industrial classification. For some nonemployer sole proprietorships, such as those engaged in investment or entertainment, it may be possible to have well over $1 million in receipts and remain in the nonemployer universe. However, it is unlikely that a sole proprietorship restaurant, for example, would have over $1 million in receipts and have no paid employees.

For 2009 Nonemployer Statistics data, new cutoffs were carefully researched to more closely depict the Nonemployer business universe and improve the accuracy of the list of firms for sole proprietorships. In addition, improvements were made to filter out likely employers from the corporation and partnership data. When comparing the 2009 Nonemployers Statistics data to prior years, these changes in methodology must be taken into consideration. For this reason, a Revised 2008 Nonemployer Statistics Table [.xls] has been made available to gauge the effects of these changes.

Nonemployer businesses with less than $1,000 in receipts are also excluded in all industries except Construction. The small receipts of these non-construction firms indicate that they may represent hobbies as opposed to normal business activities.

Legal Form of Organization

The Legal Form of Organization (LFO) for nonemployer businesses is derived from administrative record sources. U.S. and State-level data are published by the following legal form of organization categories: Corporations, Sole Proprietorships, and Partnerships. Since nonemployer data by definition is subject to federal income tax, other legal forms of organization such as government and non-profit are not included in the tabulations.

Professional Employer Organizations

Historically, the permanent on-site workforce at a business location was made up of paid employees of that establishment. This traditional practice of firms directly hiring employees is still the dominant employer/employee relationship in the United States. However, over the past decade a new work force arrangement has emerged; a company commonly known as an employee leasing company or professional employer organization (PEO) operates in a co-employment relationship with client businesses. Employee leasing establishments typically acquire and lease back some or all of the employees of their clients, and serve as the employer of record of the leased employees for payroll, benefits, and related purposes. In cases where all employees are leased or contracted, the payroll for the business is zero, placing it in the potential nonemployer universe. In some cases, an employer will be tabulated due to this lack of payroll. Currently, the Census Bureau does not have a reliable method to identify the universe of firms that lease all of their employees. To mitigate this problem, Nonemployer Statistics uses detailed processing and editing of the data to eliminate likely employers based on the size of the receipts for a given type of industry.

Exclusions and Undercoverage

Nonemployer Statistics covers most sectors in the economy. For data on businesses with employees, refer to the County Business Patterns. Tax-exempt businesses are excluded from the Nonemployer Statistics tabulations. A certain amount of undercoverage in the universe occurs as a result of processing deadlines. If the Census Bureau receives information on a potential nonemployer business more than one year after the end of the reference year, it is excluded from the nonemployer tabulations. The estimated undercount of nonemployer corporation and partnership firms because of late reporting is around 5 percent. This accounts for about 1 to 2 percent of total receipts. The estimated undercount for sole proprietorship firms because of late reporting is much less.

INDUSTRY CLASSIFICATION OF FIRMS

Industry classification of firms is currently based on the 2012 North American Industry Classifcation System (NAICS), which is comprised of nearly 1,200 industries. For more information on the 2012 NAICS codes, as well as comparisons between the 2007 and 2012 codes, go to http://www.census.gov/eos/www/naics. Data for nonemployers generally are provided at broader levels of industry detail than data for employers. Nonemployer Statistics are limited to approximately 450 codes that are available through administrative-record sources and are common to all three legal forms of organization applicable to nonemployer businesses (sole proprietorship, partnership, and corporation). These industry codes are primarily self-classified by tax filers through Internal Revenue Service forms. Other sources for assigning industry classifications are the Social Security Administration and the Bureau of Labor Statistics.

There is a small percentage of nonemployers that are unclassified. The percentage is at its lowest in Economic Census years. For these cases, an industry classification is assigned, or imputed, from a classified firm within the same county with a similar value of receipts and the same legal form of organization. This imputation procedure has the effect of preserving the distribution of firms and receipts by industry, while eliminating an unclassified component which varies in size each year. To control the contribution of imputed classifications, we have adopted the rule that if firms with an imputed classification account for more than 40 percent of either receipts or number of firms in a published row, both items are suppressed and assigned a flag of `S`. At the national level, less than 12 percent of nonemployer firms have an imputed classification, accounting for 3 to 5 percent of receipts.

The Nonemployer Statistics series includes the following NAICS sectors:

Sector
Description
11(pt) Agricultural Support, Forestry, Fishing, and Hunting
21 Mining
22 Utilities
23 Construction
31-33 Manufacturing
42 Wholesale Trade
44-45 Retail Trade
48-49 Transportation and Warehousing
51 Information
52 Finance and Insurance
53 Real Estate and Rental and Leasing
54 Professional, Scientific, and Technical Services
56 Administrative and Support and Waste Management and Remediation Services
61 Educational Services
62 Health Care and Social Assistance
71 Arts, Entertainment, and Recreation
72 Accommodation and Foodservices
81 Other Services (except Public Administration)

NAICS Industries Excluded or Reclassified

Nonemployer Statistics cover most NAICS industries within the above listed sectors, however, there are some exclusions. The following sectors are not published as part of the Nonemployer Statistics data: crop and animal production (NAICS 111,112), National postal service (NAICS 491), Investments, funds, trusts, and other financial vehicles (NAICS 525), Management of companies and enterprises (NAICS 55), private households (NAICS 814), and Public administration (NAICS 92).

Certain industries are automatically reclassified when they appear in the Nonemployer universe because these industries are generally assumed to require employees. These include: New car dealers (44111) -- reclassified to Used car dealers (44112); Department stores (4521) -- reclassified to General merchandise stores (452); Rail transportation (NAICS 482) -- reclassified to Support activities for transportation (488); Hospitals (NAICS 622) -- reclassified to Other ambulatory health care services (6219); and finally Oil and gas extraction (2111) only in areas without oil or gas production -- reclassified to Other financial investment activities (5239).

GEOGRAPHIC CLASSIFICATION OF FIRMS

The Nonemployer Statistics data series shows data for the United States, and by State, County (or county equivalent), and recognized Metropolitan/Micropolitan and Combined Statistical areas.

Most geography codes are derived from the business owner`s mailing address identified from administrative records. Because the owner's mailing address may not be the same as the physical location of the business, the resulting geography codes do not always represent where business is actually conducted, but this represents the best information available regarding the location of the business. The nonemployer tabulations exclude records with invalid, foreign, or military geographic locations.

Nonemployer Statistics publishes county data for Louisiana (parishes) and Alaska (organized boroughs, city and boroughs, municipalities, and census areas) as the equivalent of a county. The independent cities in Virginia, and the cities of Baltimore, MD; Carson City, NV; and St. Louis, MO, are treated as separate counties.

Puerto Rico and the Island Areas (American Samoa, Guam, The Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands) are excluded from Nonemployer Statistics.

Nonemployer Statistics are not available by sub-place geographies, such as blocks, block groups, and tracts, as recognized by the Decennial Census. Also excluded are many of the sub-county and sub-state geographies (including school, congressional, voting, and state legislative districts) the Decennial Census publishes. These geographies are excluded because publishing nonemployer statistics at this level of detail would result in too many suppressed data cells for individual businesses.

DATA WITHHELD FROM PUBLICATION

In accordance with U.S. Code, Title 13, Section 9, no data are published that would disclose the operations of an individual business.

Cell Suppression

Census Bureau and IRS disclosure guidelines are followed because the vast majority of Nonemployer Statistics data originates with the IRS. For tables at all levels of geography, the number of firms and receipts in a data cell can be published only if the cell contains three or more nonemployer businesses. In all other cases, the cell is not disclosed and is labeled with a (D) flag to indicate the cell value is withheld to avoid disclosing data of individual companies. However this data is included in higher level totals. In tables from reference year 2004 or earlier, cell suppression was used to protect data confidentiality for those cells that had a value based largely on contributions from one or two firms.

Also, other cells may be suppressed for additional protection from disclosure or because the quality of the data does not meet publication standards. If more than 40 percent of either receipts or firms in a published data cell are from firms with an imputed industry classification, both items are suppressed. These cells are flagged with an (S). The (S) flag indicates there are firms engaged in economic activity for that industry level and the suppressed data are included in higher-level totals. Though some of these suppressed cells may be derived by subtraction, the results are not official and may differ substantially from the true value.

Noise Infusion

Since reference year 2005, the Noise Infusion data protection method has been applied to prevent disclosure of receipt cell values. Noise infusion is a method of disclosure avoidance in which values for each firm are perturbed prior to table creation by applying a random noise multiplier to the magnitude data (in this case, receipts) independently for each business. Disclosure protection is accomplished in a manner that results in a relatively small change in the vast majority of cell values.

Starting in 2007, each published cell value has an associated noise flag indicating the relative amount of distortion in the cell value resulting from the perturbation of the data for the contributors to the cell. The flag for ‘low noise’ (G) indicates the cell value was changed by less than 2 percent with the application of noise, and the flag for ‘moderate noise’ (H) indicates the value was changed by 2 percent or more but less than 5 percent. Cells that have been changed by 5 percent or more are suppressed from the published tables and flagged with an (S) because the values do not meet publication standards.

For further explanation of the noise infusion method, see Using Noise for Disclosure Limitation of Establishment Tabular Data Link to a non-federal Web siteby Timothy Evans, Laura Zayatz, John Slanta in the Journal of Official Statistics (1998).

RELIABILITY OF DATA

The nonemployer data are tabulated from administrative records data only, and are not subject to sampling error. No survey data are collected. These data undergo complex processing, editing, and analytical review at the Census Bureau to distinguish nonemployers from employers, correct and complete data items, and form the final nonemployer universe. Despite extensive review, the data compiled for Nonemployer Statistics are subject to nonsampling errors, which can be attributed to many sources: inability to identify all cases that should be in the universe; definition and classification difficulties; errors in recording or coding the data obtained; and other errors of coverage, processing, and estimation for missing or misreported data.

The accuracy of tabulated data is determined by the joint effects of the various nonsampling errors. No direct measurement of these effects has been obtained except for estimation for missing or misreported industry classifications; however, precautionary steps were taken in all phases of the processing to minimize the effects of nonsampling errors.

The improper inclusion of possible employer establishments in the nonemployer universe is a primary source of nonsampling error. The Census Bureau takes several steps to identify and remove these establishments from the nonemployer universe. The most significant cases are identified, but the size of the universe, limited resources, and limited data on which to make a determination do not achieve the complete removal of all employer establishments.

The assignment or imputation of an industry classification to nonemployer firms with missing classification is another source of nonsampling error. The effect of this imputation is to preserve the overall distribution of totals by industry at the county and higher geographic levels, but certain data cells may be adversely affected in counties or industries with a small number of firms. Data cells with a high level of imputation are identified in the tabulations as not meeting publication standards.

A lag in filing with the IRS may also cause exclusions from the reference year data set. For example, the IRS Tax Reporting Relief program allowed taxpayers in hurricane affected regions additional time in filing tax returns. The 2004 and 2005 Nonemployer totals may be low due to this late tax reporting in hurricane impacted counties/regions.


QUESTIONS?

For frequently asked questions (FAQs) visit Ask.Census.Gov or click the FAQs tab at the top of the screen. This link will open a new page within this window. Enter 'nonemployer' into the search box to narrow the results.

For more information, contact the Nonemployer Statistics staff at (301)763-2580 or by email.
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Source: U.S. Census Bureau | Nonemployer Statistics | (301) 763-2580 |  Last Revised: June 19, 2014