Weekly earnings growth at small businesses reached all-time high in December, says Paychex

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The tight labor market prompted wage growth at small businesses to accelerate in December and reach an all-time high on the monthly Paychex | IHS Markit Small Business Employment Watch.

The report, released Tuesday, indicated steady growth in both hourly earnings and hours worked by employees at small businesses, with hours worked in December posting the strongest gains since 2012. That pushed weekly earnings growth to 4.13 percent, an all-time high on the monthly report for small-business employees. The pace of small-business employment growth stayed consistent, with the national jobs index up slightly (0.06 percent) in December.

“There was a two- or three-month trend at the end of the year where wages have accelerated,” said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. “We definitely have been seeing that jump up nicely due to significant minimum wage increases in various states and cities. Now we’re seeing it in the supervisory or managerial sectors.”

The South led the way among regions in terms of small-business employment growth in December, while the West continued to be the top region for hourly earnings growth, followed closely by the Northeast. Tennessee stayed in the lead among states on small-business job growth, while New York led the way on hourly earnings growth at the state level. In terms of metropolitan areas, Dallas was again the top city for small-business job growth in December, while Los Angeles again led the way among metro areas on hourly earnings growth.

“Wages are growing very strongly on the coasts, in California, New Jersey, New York and Pennsylvania, but not so much in the South,” said Fiorille. “But the employment growth in the South is stronger. It makes sense that in those areas where we’re seeing wages and hourly earnings go up, they’re having trouble attracting and retaining employees across the board.”

The leisure and hospitality sector topped the other industry sectors on all three wage growth components: hourly and weekly earnings and weekly hours worked. The education and health services sector was the only industry that had less than 2 percent hourly earnings growth.

Fiorille advises accountants to be aware of the various regulatory changes occurring in January. “We like to remind accountants this time of year that the turn of the year always brings in new regulations like minimum wage increases, legalization of marijuana, and privacy,” he said. “Always be on the lookout for those changes that went into effect on Jan. 1.”

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