Hourly earnings growth at small businesses reached a record level this month, according to data released Tuesday by payroll giant Paychex, as small business hiring also grew.
The Paychex | IHS Markit Small Business Employment Watch indicated hourly earnings growth increased to 4.07%, the highest level since reporting began a decade ago.
Hourly earnings growth has steadily increased in recent months, from 2.99% in June to 4.07% in November. Of the 20 most populous states, all have hourly earnings growth above 3%. With hourly earnings growth at record levels, weekly earnings growth is rising by nearly a full percentage point from August (2.54%) to November (3.46%).
“A lot of it used to be minimum wage increases, but we’re really seeing in the numbers that small businesses are having to pay up not just to get people in the door, but to keep them,” said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. “Even in the lower-wage quintile, a lot of employers have to offer bonuses and be creative to bring in people and keep them. A lot of that is in the restaurant and hospitality sector. We’re seeing real hot wage growth there. It used to be a big thing about the $15 minimum wage and all the studies about what it does and doesn’t do and the impact of that. Our minimum wage is now up to $19. That $15 number is long gone now, and it’s at a higher level now.”
That is forcing small businesses to make hard choices about how much they can raise prices in this inflationary environment, or absorb the increases in pay for their employees.
Meanwhile, small business hiring also went up for the month, with the Small Business Jobs Index up 0.27% in November to 100.72. The leisure and hospitality sector led the way in growth for both earnings and hours worked for the eighth month in a row. The South regained its lead among the various regions in terms of small business employment growth, especially in the South Atlantic area.
“We continue to see a nice steady rise in our flagship indicator for six months in a row,” said Fiorille. “We’re getting close to a record level with the index. It looks like small to medium-size businesses are adding employees. They are growing, even though we have all this information out there about how small businesses can’t find people to work. Our take is that shelf life is starting to dwindle with the [unemployment insurance] topoff done now. People are probably going through their savings, and you’re starting to see the safety issue lessen up a little bit along with a generally strong economy.”
Safety concerns may return again with recent reports of a new highly transmissible variant of COVID-19 spreading around the world, but Paychex’s data was collected before reports of the new Omicron variant emerged over the holiday weekend.
“We’ll be able to see next month if there was any discernible impact,” said Fiorille. “My take is probably no right now, but let’s see what happens.”
Federal Reserve chairman Jerome Powell warned in prepared testimony Tuesday to Congress that there may be an impact on jobs and the economy as well as inflation from the variant. “The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation,” he said. “Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.”
Accountants should keep their small business clients informed about the latest developments in Washington, including the recently signed bipartisan infrastructure law, as well as progress on the Build Back Better Act, which the House passed earlier this month. The bill is now in the hands of the Senate, where it faces an uncertain future unless Senate Democrats manage to overcome their differences and pass it through a budget reconciliation procedure. In the meantime, changes at the state level keep happening as well.
“There’s a lot of stuff going on in D.C. and then the states are doing their own different things,” said Fiorille. “If you do business in multiple states, you’ve really got to be monitoring it.”