Hiring is expected to remain a major concern for small businesses as they enter 2008.

That bad news, however, is being tempered with projections showing sales growth for the country's small and medium-sized companies is expected to rise next year as consumers and governments continue to keep their wallets open.

Even though the national unemployment rate, which hit a 33-year low in September when it dropped to 5.9 per cent, is projected to rise to 6.4 per cent next year as employment growth slows down, small-business owners are being told that they're going to have to think outside the box when it comes to finding and retaining staff.

The increase in unemployment is predicted to show up primarily in Central and Eastern Canada, and rise minimally in Alberta and British Columbia, according to TD Bank Financial Group chief economist Craig Alexander.

Manitoba and Saskatchewan will see their unemployment numbers drop slightly.

"The 2008 outlook is that employment growth will slow from about a two-per-cent pace in 2007 down to a 1.2-per-cent pace in 2008," says Alexander, "and that suggests the unemployment rate in Canada will rise towards 6.4 per cent from 5.9 per cent right now."

As for those open wallets, Alexander says his 2008 outlook suggests that small businesses can expect to see sales rise by five per cent, a figure he calls healthy.

But despite a slight increase in labour availability, it won't be enough to help moderate the tight employment climate that small-business owners face.

"When you talk to small businesses, many will tell you the labour market is tight and it's hard to find and retain skilled workers," says Alexander. "This isn't surprising given that the unemployment rate in Canada is at a 33-year low.

"One of the most interesting things I find when I do presentations across the country is that, no matter where you are in Canada, small businesses are reporting that labour markets are tight."

Those comments are echoed by the Canadian Federation of Independent Business (CFIB), a lobby group for small and medium-sized businesses that represents 105,000 firms across Canada - most with less than 50 employees.

"Increasingly, we're finding the general labour shortage is spreading across Canada," says the CFIB's Dan Kelly, the organization's senior vice-president for legislative affairs.

"Across Canada, 54 per cent of our members are saying they're experiencing a shortage of qualified labour," says Kelly, calling the issue one of the most gripping challenges that small businesses are dealing with.

"The high is Alberta at 72 per cent of our members ... the low is in Nova Scotia and even there it's 34 per cent of our members. The province experiencing the least - Nova Scotia - is still over a third, so it's clear that this is an issue across the country."

The latest CFIB Help Wanted study, from March 2007, estimated that 251,000 positions in small and medium-sized businesses remained vacant for more than four months in 2006.

Numbers from Scotiabank - based on a TNS Canadian Facts survey the bank commissioned for internal use - show the number of small businesses identifying labour and staffing issues as a challenge for them rose from 18 per cent nationally in 2005 to 22 per cent this year.

It's not just small-business startups that are having trouble finding employees. David Wilton, director of small-business banking for Scotiabank, says small businesses that are on a growth curve are feeling the pinch, as well as mature companies and even those firms that are in the process of winding down.

To combat those concerns, Scotiabank has partnered with online careers and recruitment resource Monster.ca. The bank's small-business clients now have access - at discounted prices - to Monster's team that will help write attention-grabbing job ads, screening questions, acknowledgment letters and posting the jobs online.

To become an employer of choice, the Business Development Bank of Canada (BDC) suggests creating a workplace where there is innovation and the potential for employees to expand their horizons.

"An organization should try to become an employer of choice because, if they can become an organization of choice, people will come to them," says Melodie Woods, managing partner for BDC consulting on the Prairies. "They need to do a lot of creative thinking around where to find a pool of candidates - right now people are fairly traditional and put an ad in the paper and that may not work now.

"Use radio, go to universities, there are an incredible amount of opportunities to think of where people can be hired from. Be the best at what you're doing so people are proud to work there."

Being a small company can also have benefits that larger businesses may be hard-pressed to match, says Dawn Fedorvich, web services co-ordinator for the Business Link in Edmonton, an information centre that is part of a federal Canadawide business network program.

"Small businesses can compete on the fact they are a small business," says Fedorvich. "They need to be highlighting their strengths. If they can't offer the highest wage, they can offer a better working environment or a more family-oriented atmosphere.

"Sometimes they can offer more flexibility to their employees and then they can also compete on their internal culture - if they're in a small town, there's a slower pace of life or there may be beautiful scenery.

"Not all employees want the high paycheque, they want a quality of life as well."

When it comes to hiring, Fedorvich also suggests small businesses should emphasize that while candidates may have to handle a number of roles, they'll be able to learn more and grow as opposed to being pegged to one post in a larger firm, doing the same task over and over.

Further, small companies may be more open to flexible work schedules where a larger enterprise may not have that luxury, or if it did it would find itself having to offer different options to hundreds of employees, which could become a logistical nightmare.

Meanwhile, to retain existing staff, offer incentives tailored to your individual employees, says Fedorvich, whether it's giving them an extra day off that is important to them or presenting gift certificates at the local mall if the employee in question likes to shop.

"Today, Baby Boomers are working with Generation X and Generation Y, you need to motivate them differently," adds Woods.

It all comes down to broadening your horizons when it comes to hiring, emphasizes the TD Bank's Alexander.

"Small business is going to be competing for talented labour. Many are going to have to think about incentives to retain employees but it doesn't have to be monetary," says Alexander. "For many workers, it isn't just the wage numbers that matter, it's the type of work."

(Laura Severs can be reached at laura@businessedge.ca)