Small businesses added jobs and increased pay in July

The pace of growth in small business jobs and wages across the country stayed on an even keel in July, according to payroll provider Paychex.

The company reported that job growth increased 0.17 percentage points to 99.82 in July on the Small Business Jobs Index component of its monthly Small Business Employment Watch, which tracks 35,000 small businesses with fewer than 50 employees. Hourly earnings growth for small business employees also maintained a consistent trend, staying below 3% (2.74%) for the ninth month in a row.

"There was a little bit of a trend change," said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. "We saw the index tick up this month, which was really nice to see."

However, he acknowledged that one month doesn't make a trend, but he sees positive signs. "This frozen state of businesses is hopefully starting to thaw. Maybe the big driver is the tax bill getting passed, and some better news on the tariff front."

Paychex measures both job stayers and job switchers, and found that it's not paying much for people to leave jobs now. (Rival payroll company ADP's report, which was released Wednesday, revealed some differences between annual pay increases for job stayers and job quitters, with year-over-year pay growth 4.4% for people who stayed in their jobs and 7% for those who changed jobs.)

Paychex is seeing more hiring strength in the Midwest, with Ohio being the leading state, closely followed by Indiana. Performance has been lagging in the South, which had been an outperforming region for a long time. 

Education and health services led the way among sectors for small business job growth for the 14th-month in a row. On the other hand, leisure and hospitality remained in last place among sectors in terms of job growth in July at 98.35, but its jobs index represented the largest one-month gain (0.59 percentage points) among industries.

Paychex is eagerly awaiting more guidance on various provisions of the One Big Beautiful Tax Bill, including the new provisions relating to overtime pay and tip income.

"We're closed doors, head down, going through that thing and trying to look at the nuances and details," said Fiorille. "There's more to come on that right as the IRS issues guidance and what that means. For small businesses, there's a lot of stuff in there, mostly bullish, mostly positive, but it will be interesting to see as the guidance comes out."