The pace of small business job growth slackened slightly in July, according to the latest figures from payroll giant Paychex, although wages were up.
After reaching a high point in June, the Paychex | IHS Small Business Jobs Index, which Paychex compiles with the research firm IHS, dipped 0.12 percent in July to 100.68. However, that figure was still 0.04 percent higher than in July of last year.
“We saw a little bit of a decrease from June,” Paychex president and CEO Martin Mucci told Accounting Today. “We had a nice jump last month and then a little bit of a decrease this month. It’s been choppy.”
However, he pointed out that job growth is still up 0.3 percent so far this year.
Small business employment has strengthened in the past 12 months on the East Coast. The South Atlantic region in particular has seen an increase in small business job growth of 0.52 percent for the past three months, according to Paychex’s figures, with the South Atlantic region staying in the top spot, up 0.80 percent year-over-year. Washington State led the way as the top-ranked state index at 103.63, but slipped 0.83 percent compared to June. Among metropolitan areas, Seattle and Atlanta reflected their state index numbers, with small business job growth in Seattle slowing and Atlanta increasing significantly.
“From a region perspective the East Coast has the strongest year-over-year growth and in the Northeast it’s basically recovering from fairly low numbers,” said Mucci. “The index has bounced back from lows last year for the major cities in the Northeast: Boston, New York, Washington and Baltimore. In the Southeast, in states like Georgia, Florida, Virginia and North Carolina, they’re up in the top of the index, but they’ve had sustained positive job growth. The Southeast is where things are the strongest right now.”
Employment growth slowed in eight of the nine industries tracked by Paychex in July, with the combined trade, transportation and utilities sector the only one to increase small business employment growth. That sector grew 0.23 percent over June and is back over 100 for the first time since July 2015. Construction, on the other hand, had the worst one-month result, declining 0.53 percent in July and giving up all of its gains in June. Nevertheless, at 101.67, the Construction index was only surpassed by Other Services, which typically includes discretionary services such as hair styling. The combined education and health services sector suffered a slight setback in July, but continues to trend positively year-over-year, with an index level just below 101. At 99.25, the financial activities sector was at a four-year low in July and appears to be having its worst start to a year since 2006. The financial activities sector was down 0.52 percent in 2016 and 1.21 percent year-over-year. Manufacturing remained the lowest-ranked industry at 98.44 on the index, down for the sixth consecutive month.
“‘Other Services’ is still the strongest,” said Mucci. “That’s up almost about 1 and a half percent from last year, and that’s across the country. Construction is interesting because it’s fairly flat compared to last year’s growth rate, yet we are seeing in other data that the sale of new single-family homes is up around 25 percent across the country. You would think that construction would be a little bit stronger, but I think those sales of new homes are in certain pockets of the country, particularly in the Southeast and Mid-Atlantic. Part-time employment is still hovering around 10 percent of total employment.”
Paychex is also seeing positive signs on wages in its wage data, particularly in cities and states that have mandated increases in minimum wages. “Wages are up about 3.7 percent versus last year,” said Mucci. “That’s a pretty good jump. The only bad news is that I think a lot of that is part-time. The minimum wage increases are starting to show up in some areas. The largest increases are in leisure and hospitality, which of course would be impacted by the minimum wage.”
Accountants should advise clients on how to deal with new wage requirements in some parts of the country, along with regulations such as the Labor Department’s recent overtime pay rule (see Obama Administration Expands Overtime Pay Eligibility). “I think they’re going to see the need for higher wages to compete,” said Mucci. “We’re getting closer to what the Fed says looks like full employment. When we’re seeing these wage increases and minimum wage increases, they’re going to have to pay more for the help. Accountants can really help small businesses in particular with the rules on the minimum wage. Where is that rolling out? Where does it apply? When does it apply? And the new overtime rules.”
Accountants can also help their small business clients avoid stiff penalties for noncompliance. “We’ve seen a number of court cases lately, and there’s more onus on the employer to decide when overtime should be paid,” said Mucci. “Also there are new higher civil penalty amounts for violations of federal regulations going into effect on August 1—things like failure to tell employees what the new minimum wage is, failure to give them benefit statements, and Form 5500s if they have a 401(k). All the penalties are up more than double what they were last year. It puts a lot of onus on the CPA to advise their clients to help them follow the rules and regulations because the penalties are really going up.”
Many small businesses do not know about the new rules and need their accountants to keep them informed. “When you’re a small employer, you don’t have an HR department that keeps track of what’s changed on family leave, on minimum wage, on overtime regs,” said Mucci. “In some of our survey work, we found that a number of small businesses were not even aware of the overtime rules changing and really had not kept up with it. Accountants can help them a lot with these regulatory changes.”
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