Paychex sees rebound in small business job growth in January

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Employment and wage growth at small businesses grew this month, according to payroll giant Paychex.

The Paychex | IHS Markit Small Business Employment Watch, which Paychex compiles with the research firm IHS Markit, began the year with some positive signs. The Small Business Jobs Index reached 99.88, a 0.18 percent increase over December. However, the job growth rate is still below last January’s level of 0.74 percent.

Hourly earnings grew $0.72 this past year to $26.38. January’s 12-month wage growth rate of 2.81 percent represents an improvement from December’s 2.78 percent.

“We’ve seen a bounce back this month,” said Frank Fiorille, vice president of risk, compliance, and data analytics at Paychex. “We usually see January pick up a little bit, which has to do with how the index works, and new clients coming on that are faster growing. I also think there’s probably some more confidence from tax reform being passed.”

He expects the impact of the new tax law to show up more in next month’s employment numbers. The continuing unwinding of regulations also may be contributing to business confidence, according to Fiorille.

The leisure and hospitality sector improved the most among industry sectors in terms of small business job gains in January.

“Leisure and hospitality was real strong again, and some of that has to do with confidence and more disposable income,” said Fiorille.

The South led other regions of the country in employment growth, while the West ranked highest in terms of wage growth.

Among states, Tennessee continued to lead in job growth, while Arizona remained in first place in terms of annual hourly earnings growth. Among metropolitan areas, Denver ranked in first place in small business job growth, while Phoenix led in small business wage growth.

So far, the bonuses and pay raises that some high-profile corporations have been giving employees after passage of the new tax law haven’t had much impact on small business wages. Small businesses seem more likely to use the tax savings for investment.

“I’ve not heard that from the small business side as much,” said Fiorille. “I think they’re probably going to use it more for investment purposes to grow.”

Fiorille recommends accountants continue to keep their small business clients informed about the latest developments in the wake of the tax law, including the new withholding schedules that recently came out from the Internal Revenue Service.

“With the withholding tables, we got that done that night so our clients and employees had the correct number withheld the next day,” said Fiorille. “We had that up immediately. There’s more to come on all this, and there could be more complexity, more nuances and issues, and we’re trying to stay in close contact with the IRS.”

States too are responding to the new tax law with proposals for converting some of their income taxes into payroll taxes to recoup some of the money their taxpayers might lose from the federal tax law’s new limits on deductibility of state and local taxes. New York Governor Andrew Cuomo has proposed such a move, and Paychex has been keeping an eye on that especially closely, as the company is based in Rochester, N.Y., while planning out various scenarios.

“We are talking to those guys,” said Fiorille. “They’ve asked for our input and how things could work and should work.”

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