Reality: To determine the share of employment small businesses account for in the U.S., I've always used data from the Office of Advocacy of the Small Business Administration which provides data produced by the U.S. Census on small business employment. The Census data on the SBA Web site shows that, in 2006 (the latest year available), 50.2 percent of U.S. employment lies in businesses with fewer than 500 employees.

But recently I began looking at data from payroll provider Automatic Data Processing, which uses payroll data to track U.S. employment. ADP's data shows that the share of U.S. employment in businesses with less than 500 employees is more than 30 percentage points higher. In 2006, the ADP data showed that 82.9 percent of U.S. employment was in businesses with less than 500 employees.

Huh?

A 32.7 percent gap in the share of employment in businesses with fewer than 500 employees is much too large to be the result of just some slight difference in measurement. So something else must be going on.

What's Behind the Numbers

To figure out what could explain the differences, I took a look at what the two sources are measuring. Both are comparing employment in businesses of less than 500 employees to the overall number of people employed and both exclude employment on farms. So it's not the size of the businesses or the exclusion of agriculture that's the cause of the difference.

It's also not their labor force figures. The two sources' estimates of the number of people employed aren't that far off each other -- 119,917,000 for the SBA in 2006 and 113,475,000 for ADP in 2006. Even if we assume that every employee counted by the SBA and missed by ADP was employed in a large business, ADP's estimates would show that small businesses accounted for 77.2 percent of U.S. employment, whereas the Census/SBA estimates would show that small businesses only accounted for 50.2 percent of U.S. employment.

The use of payroll data is also not the explanation. Census measures employment on the basis of payroll tax records, using employer identification numbers to identify businesses. ADP gets its estimates from "aggregated and anonymous payroll data that represents approximately 400,000 of ADP's 500,000 U.S. business clients" which are then extrapolated to the overall population. So both sources are using payroll data to measure employment. (continued...)

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