Small businesses start to reopen and add employee hours, Paychex finds

As small businesses in different parts of the country reopen in the midst of the novel coronavirus pandemic, they are beginning to increase the number of hours worked by their employees, according to payroll giant Paychex, although spikes in the virus are threatening to set back those gains.

The Paychex | IHS Markit Small Business Employment Watch, released Tuesday, indicated that employment growth held steady in June, with the jobs index declining just 0.06 percent to 94.81. Increases in weekly earnings represented an upward trend as more businesses reopened their doors, and employees resumed work. Annualized one-month growth in weekly hours worked reached 8.28 percent in June, while weekly earnings growth rose to 4.02 percent; and hourly earnings growth increased to 3.46 percent ($0.94) year-over-year. However, the data in the latest report is only through June 18 and doesn’t account for states in the South and West that have slowed down their reopening plans in response to increases in infections.

“The 94.81 number is pretty steady, just a little bit lower than last month,” said Frank Fiorille, vice president of risk, compliance and data analytics at Paychex. “But last month we had a nice jump back from a pretty big low. We’re seeing some encouraging signs and some positive indicators in the data. Hours worked are up nicely. If you look at the one month annualized number, it was up 8.28 percent, which is pretty strong. Wages continue to be growing as well. Some of that is people returning to work.”

Paychex also has a paid employment index that rose 4 percentage points from last month. However, the data doesn’t include recent pullbacks by some states, such as Texas, Arizona, Florida and California, which have reported rises in COVID-19 infections and caused reopening plans to slow down in some areas.

Paychex found that employment growth in the Northeast dropped 4.40 percent during the past quarter, with the biggest decline occurring in April. During that time, all the other regions of the country have seen declines of 3 percent or less. Arizona gained 0.89 percent on its jobs index from May to June, trailing behind only Florida. Tampa, Phoenix, and Miami led all metropolitan areas in the level of small business job growth in June. In the Northeast, the states of Massachusetts, New Jersey, New York and Pennsylvania scored significant weekly earnings gains from May to June, as did Michigan and Ohio in the Midwest.

On an industry basis, the hardest hit industry, leisure and hospitality, saw significant wage gains from May to June as businesses reopened, with weekly earnings growth increasing to 3.76 percent compared to the previous year.

Fiorille recommended accountants keep their clients informed about the latest guidance on the Paycheck Protection Program, whose application period closes Tuesday, although $130 billion in funds still haven’t been spent. Paychex offers a PPP loan forgiveness estimator tool to help small businesses estimate how much they are likely to be forgiven on a PPP loan by the Small Business Administration. The guidance has been changing from the Treasury and the SBA on how much employers need to spend on payroll and how many weeks employees need to be retained in order to qualify for loan forgiveness. Fiorille anticipates more guidance will be forthcoming in the next few weeks. He also suggested accountants keep their clients aware of changes in rules related to the Form 941, the Employer’s Quarterly Federal Tax Return.

“There have been a lot of changes with the CARES Act and with COVID wages,” he said. “States are doing their own different things as well. Depending on what state you’re in, there are a lot of changes going on.”