Small business wages grew in March
Employment growth at small businesses moderated slightly in March, but wages continued to increase, according to payroll giant Paychex.
The Paychex | IHS Markit Small Business Employment Watch, released Tuesday, found that small business job growth remained near its recent record high, but dipped 0.03% in March. However, the national jobs index at 101.29 increased 7.47% over the past year, while hourly earnings growth grew 4.76% year-over-year.
The results indicate that the labor shortage is still affecting employment levels as small businesses have to work hard to compete for workers against larger companies that can offer higher wages and benefits.
While employment growth in March slipped slightly in March, it’s still near record levels on the index. “It’s been growing every month, so sooner or later it’s going to have to go down a little bit or not grow as much, and we’ve seen that,” said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. “Wages continue to grow. The national hourly earnings growth was up 4.76%. That’s our tenth consecutive increase in wages, so there’s no stopping the wage inflation as people are trying to fill roles and openings. Even though we’re now into spring, it seems like employers are still having a difficult time finding people. They’re doing a lot of creative things, like bonuses for front-line workers in restaurants, different shifts, and having to pay higher wages.”
The West and South led among the various regions of the country, with hourly earnings growth above 5%. Ohio and North Carolina showed the highest rates of hourly earnings growth, both above 6%. Leisure and hospitality led the way among the industry sectors in both small business jobs growth and hourly earnings growth.
“North Carolina was the best state for two months in a row and has jumped up to the leading state on the index,” said Fiorille. “Georgia was strong as well. And then on wages Denver was pretty strong as well. We continue to see a lot of gains in the leisure and hospitality sector as that comes back from the pandemic. It continues to be the highest discipline or sector in the index, but that growth is definitely slowing, which you would expect as it has been on fire for a very long time.”
If the record level of inflation continues, it could dampen growth for many small businesses who find their customers saving their money for necessary expenses. “Everybody is clearly focused on inflation,” said Fiorille. “We’ve seen that some of the consumer index numbers have been the lowest in decades, as people are very concerned about inflation, and what that does to small businesses. Can they keep up with inflation and having to pay higher wages? With the issues they’re having on the supply chain, are they going to continue to keep their margins and what will they have to do to maintain those margins going forward? Those will be the questions in the spring and summer that we’re going to watch very closely.”
Consumer spending continues to be very strong, however. “They’re still flush with cash,” said Fiorille. “I don’t know how long that’s going to last.”
Accountants and their small business clients will need to keep a close eye on what’s happening in the federal government and the states with new tax proposals from the Biden administration and regulatory moves among state governments.
“It seems like things are starting to open back up regarding the president’s agenda,” said Fiorille. “Whether that gets passed or not remains to be seen, but that is starting to come back in. You have to watch that along with any regulatory changes from states as well.”