Small-business hiring slowed in March, but wage growth was stable, says Paychex

The rate of job growth at small businesses slowed in March, but wage growth continued at a healthy pace, according to payroll giant Paychex.

The Paychex | IHS Markit Small Business Employment Watch had its first job growth decrease of the year last month. After staying relatively flat in January and February, the Small Business Jobs Index dipped 0.15 percent to 98.78. But despite a 0.88 percent slowdown on a year-over-year basis, the first quarter of this year was the strongest quarter in the past year. Meanwhile, on the wages side, hourly earnings growth moderated a bit to 2.52 percent ($0.66) in March, though annualized one-month and three-month growth rates were closer to 3 percent.

“After two flattish months that began 2019, we saw the index resume its decline in March that we had seen in the previous year,” said Frank Fiorille, vice president of risk management, compliance, and data analytics at Paychex. “It’s at its lowest level since August of 2010. Even though we’re seeing growth, the velocity of that growth continues to slow down. Small mom-and-pop shops are having trouble finding and attracting employees.”

To fill their open positions, he sees more small businesses hiring people with associate degrees for jobs that used to require bachelor degrees from colleges, as well as expanding their employment of disabled workers.

The South continued to lead among various regions of the country in terms of employment growth, while the West remained the top region for hourly earnings growth by nearly a full percent. Texas was the strongest state for small-business job growth, while California was again the top state for wage growth. Dallas took the top spot among metropolitan areas on job growth, while San Diego was in first place among metro areas for wage growth.

“We continue to see growth in the South and the Southwest, and then conversely the Northeast is lagging,” said Fiorille. “If you look at our rankings, the bottom three or four metros or states are all in the Northeast. Texas continues to be really strong, especially in Dallas and Houston with energy prices increasing.”

Employment in the construction industry declined last month, but remained one of the strongest sectors for small-business employment growth. The combined trade, transportation and utilities industry also slipped a bit for the first time since 2010.

Meanwhile, the leisure and hospitality sector, with the lowest average hourly earnings ($17.10/hour), led among the various sectors in terms of wage growth at 4.20 percent. Much of the growth in the leisure and hospitality sector can be attributed to minimum wage increase this year in different parts of the country, according to Fiorille.

This month, as tax season comes to a close, he advises accountants who service small business clients to be aware of the Internal Revenue Service’s new rules for Employer Identification Numbers (see IRS beefs up security on EIN application process).