Paychex sees worker hours increasing at small businesses

The number of weekly hours worked by employees rose in August at small businesses, according to payroll giant Paychex, but there was a continuing decrease in the rate of growth in both small business jobs and wages last month.

The Paychex | IHS Markit Small Business Employment Watch, which Paychex compiles each month with the research firm IHS Markit, found that the Small Business Jobs Index declined 0.12 percent in August to 99.22, the third consecutive monthly decline. The rate of hourly earnings growth in August was 2.21 percent. Despite the hiring slowdown, the number of weekly hours worked has been increasing for the past 21 months and is up 0.52 percent year over year, helping boost weekly earnings growth 2.74 percent year over year.

“We saw a decline in hiring and a very low unemployment rate,” said Paychex president and CEO Martin Mucci. “The surprise continues to be the hourly wage growth, which was only 2.2 percent, but there’s growth in weekly hours. That’s up about half a percent, which then pushes the weekly earnings up. The hourly rate is lower than we would expect. It’s a lower increase, but the weekly is a little stronger. If small-business employers can’t find the people, they’re working everyone else more hours, and hourly workers are getting more overtime.”

The top region of the country for employment growth was the South, while for wage growth it was the West. Wisconsin ranked as the top state in terms of jobs growth, while Arizona ranked in first place for wage growth. Among metropolitan areas, Denver was at the top for job growth, while Riverside, California, took the lead in wage growth.

“As far as regional it’s pretty much the same as it has been across the country in that we’re seeing job growth decline, but that’s not overly concerning given the unemployment rate,” said Mucci. “We’re seeing the West up a little more strongly on wage growth, while the South still has the strongest job growth. We’re seeing more minimum wage increases in California.”

In terms of industries, the leisure and hospitality sector ranked in first place for wage growth, while the “other services (except public administration)” category continued to lead the way on job growth. “The ‘other services’ and leisure and hospitality sectors have dropped off substantially, but they still have the best wage increases,” said Mucci. “They’re lower paid and more subject to minimum wage increases. We’re seeing that drive the wage rates picking up in those hourly positions.”

Paychex wage growth by industry in August 2018

The leisure and hospitality sector had hourly earnings growth of 3.80 percent, followed by the construction industry at 2.99 percent.

Mucci sees opportunity for accountants to advise their small business clients about the IRS’s recent guidance about the Tax Cuts and Jobs Act.

“A number of things have come out from the IRS,” said Mucci. “The IRS has released guidance on pass-through businesses, accounting method changes and 401(k) student loan repayments. The comment period for the new W-4 for 2019 may go even longer. They’re getting quite a bit of comments about the complexity of it. Small business clients will need help with that. Also, are all their employees withholding enough for their taxes? Accountants should continue to help small businesses with that.”

For reprint and licensing requests for this article, click here.