Small businesses increased weekly pay in January, says Paychex

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Weekly earnings at small businesses continued to increase in January, while job growth went up only slightly, according to payroll giant Paychex.

Weekly earnings growth improved for the 13th month in a row, reaching 3.59 percent last month, according to the Paychex | IHS Markit Small Business Employment Watch. Weekly hours worked were up 0.83 percent from last year, which was one of the main factors behind the growth in earnings. The pace of small business employment growth was consistent last month with recent months, with the national jobs index going up just a bit in January by 0.01 percent to 98.18.

“Employment growth at small businesses is still growing, but that growth is almost dead flat,” said Frank Fiorille, vice president of risk management, compliance, and data analytics at Paychex. “Last month it was almost exactly the same, so it’s been very, very flattish for several months now. The employment picture is pretty steady. It continues to be a very tight job market for small businesses trying to attract and retain employees, and I don’t see any letup in that now. There’s been no trend change on that. On the wage front we’re continuing to see nice growth in wages, specifically in weekly earnings and hours worked.”

Minimum wage increases in various cities and states at the beginning of the year contributed to the weekly earnings growth, along with more hours as small businesses had trouble recruiting workers in the tight labor market. “This is a generalization, but from an overall standpoint, businesses are having a hard time finding employees,” said Fiorille. “They’re having to pay them more or work more hours, and you’re seeing that in our numbers. The other interesting trend we reported on a couple of months ago is we’ve been seeing nice wage growth in that first quintile, which is the low-wage segment. But we’ve seen that expand across all quintiles and all segments, so you’re seeing a nice growth in wages in what we call the supervisory band, or the manager band. We think it is driven by minimum wage increases that have been enacted in many states and cities.”

However, the minimum wage increases could also be depressing employment growth in some states. “If you look at our rankings in employment growth and wage growth. California and New York are dead last in employment growth, but they’re number one and number two in wage growth,” said Fiorille. “Probably because they can’t find people, they’re having to pay them more wages.”

The South continued to lead other regions in terms of small business employment growth, while the West remains the leading region in terms of hourly earnings growth. Tennessee ranked in first place among states on small business job growth, while New York led the way in hourly earnings growth. Phoenix became the top metropolitan area for small business job growth, while San Francisco led the way among metro areas on hourly earnings growth. At 5.12 percent, the leisure and hospitality sector led the way in hourly earnings growth among industry sectors.

“Hospitality wage growth is really strong, and I think that is from minimum wage increases and maybe some seasonality mixed in as well,” said Fiorille. “We’re seeing that jump up. Manufacturing, trade and transport (like retail) are growing a lot more slowly.”

Accountants should advise their small business clients about the new Form W-4 that the IRS introduced this year, but some states are lagging on updating their withholding forms. “The interesting twist there is the states haven’t really come out with their forms, what they're going to ask for specifically,” said Fiorille. “It’s kind of trickling in late, so keep an eye on that. If you’re a business that crosses multiple states, there’s a lot of different stuff you’ve got to keep an eye on.”

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