While small business hiring is on the rise, a lack of talented applicants and government dysfunction is taking its toll on business owners.

Over the next year, nearly a third of small business owners plan to hire new employees, according to Bank of America’s fall Small Business Owners Report. But despite a 7.3% unemployment rate, nearly half of business owners looking to fill positions say it’s difficult to find qualified employees.

“It speaks to what people suggest: The economy is in transition from manufacturing jobs and so we still don’t have the skilled labor or the qualified labor,” says Robb Hilson, Bank of America’s Small Business executive.

But the challenges facing hiring managers may be a good thing for those already employed.

“If they have that talent, they want to retain it,” says Hilson. He says business owners are being more aggressive when it comes to trying to keep employees happy; over half say they’re offering competitive salaries, and 47% are providing flexible working arrangements. Additionally, 45% are paying bonuses for high performers.

Overall, Hilson says 90% of business owners are consciously making the effort to retain the workers they already have.

Government Shutdown Hurts Optimism

The Bank of America survey was conducted between September 12 and October 3, as the debate leading up to the government shutdown was at its peak.

While more business owners feel the national economy will improve this year compared to 2012 (41% vs. 34%), government dysfunction has dealt a blow to small business. When discussing their top concerns for the coming year, 76% of business owners say they are worried about the effectiveness of government leaders. Hilson suggests that these concerns may be tempering small business hiring plans.

Health-care costs are an even greater concern for business owners, with 77% citing this as a major worry.

However, the survey suggests that health-care concerns won’t necessarily impact hiring. Fifty-six percent of business owners say the Affordable Care Act won’t change their hiring plans. Hilson says this is likely because the majority of small business owners are well below the 50-employee threshold for the employer mandate.

That said, 26% of small business owners say the law will affect their hiring plans, leading them to hire only part-time workers, independent contractors or freelancers – categories of workers who wouldn’t qualify for employer-provided health care under the law.

The Bank of America survey, conducted by Braun Research, is based on the responses of 1,000 small business owners with fewer than 99 employees.

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