Small businesses see wage growth start to stagnate in January

Hourly earnings growth for employees is slowing at small businesses in January, even as job growth continues, according to a new report.

The Paychex Small Business Employment Watch, released Tuesday by the payroll provider, found January to be the 34th consecutive month of job growth for U.S. small businesses. However, wage growth for workers continued to stabilize with hourly earnings growth remaining essentially unchanged since November at 3.47%.

“During COVID, job switchers were getting increases of almost double-digit numbers, and over the past year, that number has really come down dramatically,” said Frank Fiorille, vice president of risk, compliance and data analytics at Paychex. “There’s only a difference between job stayers and job switchers within our data of about 1%, so they’ve almost compressed now.”

All parts of the country continued to report positive job growth this past month. The South led the way, especially in Tennessee, Texas and Virginia. The top U.S. metropolitan area was Dallas, which has increased its job growth rate for three months in a row. The education and health services sector led industries for small-business job growth in January.

In terms of wage growth, the West led the way on regional hourly earnings growth for the eighth month in a row, while the South had the lowest hourly earnings growth rate among regions.

Washington State’s 5.17% hourly earnings growth in January was the highest among states for the sixth consecutive month. Seattle landed in first place among metro areas, reporting 5.27% hourly earnings growth in January, the fifth month it was above 5%.

The construction industry had the strongest weekly hours worked among sectors this month, up 0.32% since December. The leisure and hospitality industry also experienced strong one-month hourly earnings growth at 5.10%.

Fiorille advised accountants and tax professionals to keep an eye on the tax extenders bill that the House is expected to vote on Wednesday, with its provisions related to research and development expenses and an early end to the Employee Retention Credit.