Small-business wages rose in October, says Paychex

Hourly earnings rose at small businesses in October, according to payroll giant Paychex, while job growth remained relatively flat.

The Paychex | IHS Markit Small Business Employment Watch indicated that hourly earnings growth reached 3.00 percent (or about $0.80) this month. After hovering at a little over 2 percent early this year, weekly earnings growth has rapidly improved to 3.36 percent as month-to-month gains grew bigger. At 98.14, the national jobs index remains essentially the same as last month (98.22).

“For several months, we have seen nice wage growth,” said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. “However the data is telling us that the wage growth has been concentrated in what we call our first quintile, which is the very low wage base earners. A lot of that has probably been driven by all the minimum wage increases that the various states and cities have put in for several years now, and you see the wage growth there. This month changed the trend. Much of the wage growth came from the larger quintile, for the salaried and weekly hourly earnings. It looks like some of the wage growth now is maybe natural, versus forced with the minimum wage increases. It really jumped up.”

Small-business employment growth has been less dramatic this month. “Last month, we saw a really nice jump up in our index, with the fastest growth we’ve seen in some time,” said Fiorille. “This month it’s flattish, so it came down a little bit from that big month last month. There’s still growth, but the growth has definitely decelerated.”

Consistent patterns played out across geographic areas and industries in October as in recent months. The South remained in first place among regions in terms of employment growth, while the West retained its lead among regions in wage growth. Tennessee remained the leader among states in small business job growth, while New York took the top spot among states for wage growth. Dallas was again the top metropolitan area for job growth, while Los Angeles became the leading metropolitan area in terms of wage growth.

On an industry basis, the leisure and hospitality sector reached 5 percent hourly earnings growth in October, putting it in first place among industry sectors. Manufacturing improved to 5.09 percent weekly earnings growth, continuing the recent trend of strong wage growth paired with slower job growth in the sector. The education and health services sector ranked in last place among industry sectors, at 1.26 percent hourly earnings growth.

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In terms of job growth, the combined trade, transportation and utilities sector slipped further in October, just ahead of the last-ranked sector, manufacturing. Education and health services was the only sector to post a year-over-year increase, but it was a modest 0.02 percent.

Fiorille suggested accountants should keep their small-business clients informed about the new tax forms as the year comes to a close. “There’s a lot of stuff coming from the IRS,” he said. “They’re strongly recommending e-filing. The W-4 is in play now. The 1099-NEC form for non-employee compensation is out. Several IRS tax things you see at this time of year are starting to come into play.”

One major issue this will be the 20 percent deduction for pass-through businesses provided by section 199A under the 2017 tax law, which has bred considerable confusion despite the guidance and regulations that the IRS issued last year and this year. “There still needs to be a lot of education and reinforcement,” said Fiorille. “You’ve definitely got more information out there, but there are still a lot of questions around that topic.”

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