Paychex sees wages pick up in August

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Paychex reported Tuesday continued momentum in wage growth at small businesses in August, even as employment growth at those businesses dipped slightly for the sixth month in a row.

The Paychex | IHS Markit Small Business Employment Watch, which the payroll giant produces in collaboration with the research firm IHS Markit, declined 0.02 percent to 99.96 percent in August, but small business wages continue to increase, reaching a 3.00 percent ($0.76) annual growth rate in August and a 3.27 percent three-month annualized growth rate. Meanwhile, national hourly earnings in August were $25.98, a $0.07 rise from July.

Construction ranked in second place behind the catchall category for discretionary services, “Other Services (except Public Administration),” among industry sectors for jobs, but annual hourly earnings growth in the leisure and hospitality industry remained strong at 4.27 percent. The South led the way among regions in terms of employment growth, while the West ranked highest in terms of wage growth. Tennessee continued to lead among the different states in terms of job growth, while Arizona ranked in first place in annual hourly earnings growth. Dallas widened its lead as the top metropolitan area for small business job growth, while Phoenix led the way in terms of wage growth.

“The good news this month is we’re solidly hitting 3 percent wage increase across the board and across the whole country,” said Paychex president and CEO Martin Mucci. “Leisure and hospitality had lower hourly earnings rate to begin with, but they saw the biggest increases. Along with that, those states with a minimum wage have seen larger increases as well. Other Services is up 4.8 percent, and leisure and hospitality’s up 4.3 percent. From an industry perspective, they’re getting the biggest wage increase, but their hourly rates are roughly $23 for Other Services, and $16 for leisure and hospitality. They’re getting the best increase from the minimum wage impact. Those states that have minimum wage increases have seen a little bit higher wage, but they’re about half a percent lower in the growth rate for jobs, probably because of the higher wages. That does impact them to some degree.”

Meanwhile, the growth in jobs has mostly leveled out as the economy approaches what economists refer to as “full employment.”

“We’re hanging around the 100 mark on the jobs index, which is not bad,” said Mucci. “It’s leveled out to a normalized job growth rate for small businesses to our 2004 baseline. That runs about 1.2 percent annual growth in jobs. That’s around what was going on in 2004 on a normal basis. If we took an estimate of that, that looks like 125,000 to 200,000 new jobs a month, which would be the level that runs at. It’s kind of a full employment type of thing. The good news is people are more fully employed. Unemployment is down pretty low, and wages are starting to push up as a result of not just minimum wage, but the scarcity of resource when you’re trying to hire.”

Among metropolitan areas, Dallas’s small business jobs growth increased 0.60 percent in August to 102.23, widening its lead as the top-ranked metro area. Small business employment growth has also steadily improved over the past year in Philadelphia, rising 1.19 percent and moving up 13 spots to the second-ranked spot on the metro index at 101.29.

In the wake of Hurricane Harry, there is likely to be a pickup in construction and repair jobs in Houston and other areas hit by the storm, although many small businesses will suffer until they can reopen. “In the short term, obviously we would expect that it won’t be good,” said Mucci. “Small businesses in particular will have to get reopened. They’ll have to reconnect with their clients in the area. Their clients will have to get back to where they’re using them. I think in the short term there will certainly be a negative impact to small business employment, but I would say in the longer term—whether that’s three to six or nine months—there typically is a real snapback.”

Mucci noted that accountants should advise their clients to be aware of changing regulations, and that the Affordable Care Act requirements remain in effect.

“There were some informational letters that were sent out by the IRS to reaffirm the Affordable Care Act requirements,” said Mucci. “With all of this confusion about whether it is staying or going, the IRS put out a couple of letters that said just as a reminder all of the requirements are still in place right now. You still have to report and you still have to track who has insurance among your employees. The ACA requirements are still effective until amended by Congress and approved by the president. It’s still important because it’s certainly a confusing time.”

Paychex is also advising small businesses to be aware that while the federal government has been rolling back some regulations under the Trump administration, some states are stepping in with regulations of their own in areas such as changing the minimum wage and setting up 401(k) accounts for employees.

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