Wage growth slowed a bit in April, says Paychex

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Small-business job growth remained relatively consistent in April, but hourly earnings growth moderated slightly, according to payroll giant Paychex.

Overall, though, the monthly Paychex | IHS Markit Small Business Employment Watch for April indicated job and wage growth both keeping pace with trends in recent months. In the first four months of the year, job growth has stayed relatively constant, but slowed slightly by 0.03 percent per month to 98.77 in April. Meanwhile, annualized hourly earnings growth in the last quarter was 2.78 percent, but that was higher than this month’s rate of 2.50 percent ($0.66).

In terms of regions, the South continues to lead the way on employment growth, while the West stayed the top region for hourly earnings growth, topping 3 percent. Among the states, Texas was again the strongest state for small-business job growth, while Missouri captured first place among states for wage growth. In terms of metropolitan areas, Dallas was again the top metro area for small-business job growth, while San Diego continued to lead the way on small-business wage growth.

In terms of industry sectors, education and health services have increased their pace of small-business employment growth each month this year. The construction industry had its best one-month gain in nearly three years for jobs. On the wage front, the leisure and hospitality sector has led the way among industry sectors in hourly earnings growth since the beginning of 2018 and is accelerating in 2019, with 4.46 percent growth in April. Manufacturing; trade, transportation and utilities; and construction are also above 3 percent hourly earnings growth in April.

Frank Fiorille, vice president of risk management, compliance, and data analytics at Paychex, said the trends in April showed little change from recent months on hiring. “I would almost refer to the movie ‘Groundhog Day.’ It seems like every month it’s the same story: growth, but the growth just continues to moderate and slow every month,” he said.

As the labor market continues to tighten, he has heard anecdotal stories from small businesses about difficulties attracting and retaining employees. “They’re trying to come up with some creative solutions to fill these roles,” he said. “Wages are a little bit of a better story. We do see growth, but nothing significantly dramatic. We’re seeing a lot of the wage growth in the first quintile, which is the lower paid employees. I think a lot of that is attributable to minimum wage increases that went in Jan. 1. You’re seeing them flow through now. We look at sectors and disciplines. The hospitality sector and restaurants, that’s where you see a lot of the highest wage growth.”

For accountants, one trend to watch is the IRS trying to simplify tax filings for employees who work across multiple states, Fiorille noted. He also pointed out that the IRS has been trying to crack down on payroll tax fraud. “It seems like the IRS is having some better success with fraud this year than they have in the last couple of years due to some things that got implemented,” he said. “We’ve seen it improve a lot. There’s always going to be fraud, but Paychex was actually part of the working group at the IRS that helped test this and launch this. We’ve definitely seen some success in some of the things they’ve put through and some of the things the payroll providers are doing as well. There are some authentication codes and password protocols that they put in to reduce the fraud.”

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