Small business wage growth slowed in August

Hourly earnings growth for small business employees last month fell to 2.58%, the lowest level since December 2020, while job growth remained basically flat, according to payroll company Paychex.

The Paychex Small Business Employment Watch for August, based on payrolls from 350,000 companies with fewer than 50 employees, indicated the national Small Business Jobs Index for August 2025 was 99.83, nearly as much as the 99.89 set in August 2024. While the gains were moderate, the national jobs index has reported consecutive month-over-month gains for the first time since June 2023.

"There's been very little dynamism in the whole index lately," said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. "There were definitely some positive things, although modest. It's the first time since June 2023 that the index was up two months in a row, even though it was barely up."

The Midwest has led the way among all regions in small business employment growth for the past 15 months. Texas' jobs index rose by 1.13 percentage points from the previous month in August, ranking in first place among states and marking its highest pace of job growth since March 2024. Dallas reclaimed the top spot among metropolitan areas in August, while Houston followed closely behind in second place.

Education and health services (101.28) was the strongest sector in August and has led all the other sectors in small business job growth nationally for the 15th consecutive month.

The manufacturing jobs index increased 0.58 percentage points in August from July. It's the only sector with a 2025 year-to-date average pace of job growth that surpasses its average pace in 2024.

Fiorille said accountants should keep an eye out for guidance for their small business clients on the new tax law, including the recently released draft version of the Form W-2 and guidance on deducting research and development expenses. Paychex works alongside other industry members of the National Payroll Reporting Consortium in providing their input to the federal government.