Small-business hiring grew in February, but earnings growth slowed, says Paychex

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The pace of small-business job growth accelerated for the third month in a row in February, according to payroll giant Paychex, but the rate of hourly earnings growth slipped.

The Paychex | IHS Markit Small Business Employment, released Tuesday, showed a 0.15 percent increase in employment growth in February, and 0.22 percent in the past quarter, though it was down 0.61 percent from last year. Hourly earnings growth dipped to 2.74 percent in February. Weekly hours worked also fell for the second consecutive month but was up 0.41 percent compared to a year ago.

However, the figures mostly don’t take into account the impact of the coronavirus on hiring. “Our cutoff was around Feb. 19 or 20,” said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. “We’re not seeing it yet in the results. In our business we’ve not seen any impact yet, but we’re monitoring it very carefully and doing a lot of things for our clients and their employees.”

Overall, February seemed to be a strong month and marked the third consecutive positive month for employment at small businesses. “Before this [coronavirus] happened, things were looking good,” said Fiorille. “Wages have started to slump a little bit, but they had been increasing every month. It looks like that’s cooled off a bit, and the same thing with hours worked. But it’s still early in the year.”

The leisure and hospitality sector continues to lead among industry sectors, with just under 5 percent hourly and weekly earnings growth. However, the growth in weekly hours worked in leisure and hospitality has been negative year-over-year.

“We’ve seen a lot of minimum wage growth in leisure and hospitality, almost close to 5 percent,” said Fiorille. “A lot of that is being driven by minimum wage increases.”.

At 1.56 percent, the education and health services sector has been trailing all other industries in terms of hourly earnings growth.

All industry sectors saw hiring gains during the past quarter. The leisure and hospitality and combined trade, transportation and utilities sectors enjoyed the biggest increases in February, rebounding from a downturn in 2019. The financial activities sector has also been rising for the past five months in terms of hiring, and is the only sector with positive year-over-year job gains of 0.18 percent.

In terms of geography, the South remained the leading region for small business employment growth, while the West continued to be the top region for hourly earnings growth. Tennessee continued to lead the states in February in terms of small business job growth, while California led on hourly earnings growth. Philadelphia became the top metropolitan area for small business job growth, while Los Angeles ranked in first place among metro areas on hourly earnings growth.

“The South continues to be stronger on employment versus the West,” said Fiorille. “Wages are real strong in the West and the East Coast. The Northeast has looked better the past few months. They had much lower historical numbers, so they’re coming back. Philadelphia has been very strong. That’s the top city this month.”

Small businesses and their accountants should keep an eye on proposals for stimulating the economy in case the coronavirus takes a major toll. The Federal Reserve lowered interest rates by half a percentage point on Tuesday, and President Trump called for a payroll tax cut Monday night. “You’re hearing rumblings about a payroll tax cut,” said Fiorille. “Watch that, and other things. They’re talking about forbearance activities for SBA loans. The thing that CPAs and their clients need to watch is what happens with this virus.”

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Payroll Small business Paychex Recruiting Coronavirus