Small businesses pull back on hourly wage growth

Hourly earnings growth for workers slowed to 2.87% in January, while job growth also moderated at small businesses, according to a report released Tuesday by payroll company Paychex.

The Paychex Small Business Employment Watch found that the pace of job growth in U.S. small businesses with fewer than 50 employees remained slightly below 100 in January, consistent with the last six months of 2024. The 2.87% level for hourly wage growth in January was the first time it started the year below 3% since 2021.

“We’re still seeing some moderate job growth from an overall standpoint, even though our index is below 100 for a few months now,” said Frank Fiorille, vice president of risk, compliance and data analytics at Paychex. “With the continuing deceleration in hourly earnings, at 2.87%, we look at it many different ways. The one-month annualized number has actually been below 3% since last May. You’re continuing to see that be suppressed and come off some of the higher numbers that we saw after COVID.”

He expects hiring and wage growth to increase in the spring, given the rising levels of small business optimism tracked by the National Federation of Independent Business since the November election. 

Nevertheless, Payxhex’s own data is showing weekly earnings growth has quickly decelerated in recent months to 2.12% in January 2025, its lowest level since January 2019, when it was 2.10%. Similarly, weekly hours worked growth decreased further in January (-0.77%) to its lowest level since October 2021.

The Midwest remained the top region for employment growth for the eighth month in a row, with an index level of 100.23 in January. Leading the region, Indiana’s index gained 2.02 percentage points (101.67) to reclaim the top spot among states, a position it held for half of 2024.

Of the four California metropolitan areas analyzed, Los Angeles was the only area to report its pace of job growth slowing in January, perhaps due to the impact of recent significant wildfires.

Education and health services (101.72) continued to be the top sector for job growth for the eighth consecutive month, while the rate of job growth in the manufacturing (97.13) industry slowed 1.12 percentage points to its lowest level since March 2021.

Fiorille said Paychex has not yet noticed any impact in its data from President Trump’s recent series of sweeping executive orders, but he believes accountants should keep an eye out for changes during tax season. 

“So many changes are happening so fast and vast,” he said. “They’re coming from almost nowhere. Just keep an eye on the news and publications. I think it’s really critically important right now.”