Jobs report: Are small business wages keeping up with inflation?

According to new data released by QuickBooks Payroll today, employees of almost 500,000 small businesses in the US, Canada, and the UK have received big pay increases over the past 12 months. But as the chart below illustrates, inflation has risen faster.

Small businesses less likely to meet employee pay demands

After inflation is taken into account, small business employees have seen real incomes drop by -1.2% in the US, by -1.4% in Canada, and by almost -3% in the UK. With pay falling behind inflation—particularly in the UK—it seems small businesses may be less willing or able to meet employee pay demands.

According to the QuickBooks Payroll data, in July 2022, median hourly pay across all of the small businesses in the US sample was $21.51 per hour, an increase of 7.2% since July 2021 before inflation. In Canada, it was C$23.66 per hour, an annual increase of 6%. In the UK, it was £9.51 per hour, an annual increase of 5.6%.

Small businesses are hiring

Nationally, small business workforces are back to pre-pandemic levels in all three countries and continue to grow. Since July 2021, employment has grown by 3.7% in the US, by 4.7% in Canada, and by 6.4% in the UK, according to the new data from QuickBooks Payroll. Some of the fastest growing industries are among those hardest hit during the COVID-19 pandemic, as we’ll discover below.

Fastest growing industries in the US, Canada, and UK

This section of the report uses the North American Industry Classification System (NAICS) to group the small businesses in Intuit’s sample into comparable industry categories. To find out which businesses are included in each category, please see the US Census Bureau website.

Energy and arts industries growing fastest in the US

Two hard-hit US industries are staging a comeback, according to QuickBooks Payroll data. Small businesses in the energy industry and in the arts, entertainment, and recreation industry lost a huge amount of revenue during the COVID-19 pandemic. But with audiences returning and energy prices soaring, they are adding jobs faster than any others.

At the other end of the scale according to QuickBooks Payroll, the bottom five industries in the US that have seen the slowest employment growth since July 2021 are:

• Wholesale (2.6%)
• Public administration (2.3%)
• Accommodation and food services (1.7%)
• Finance and insurance (1.6%)
• Agriculture, forestry, fishing and hunting (1.0%)

Canada’s arts, entertainment, and recreation industry rebounds

In Canada, it’s a similar story. The arts, entertainment, and recreation industry has enjoyed the fastest jobs growth over the past 12 months, at 13.6%. Second and third on the list are the education and utilities industries—as the chart below illustrates—all according to QuickBooks Payroll data.

The slowest growth in small business employment in Canada since July 2021 has been in these five industries:

• Management of companies and enterprises (0.7%)
• Public administration (1.5%)
• Finance and insurance (2.4%)
• Wholesale (3.2%)
• Administrative and support and waste management and remediation services (3.4%)

Arts, entertainment, and recreation industry employment grows fastest in UK

Once again the arts, entertainment, and recreation industry tops the bill—with workforces growing by 14.7% in the UK over the past 12 months. In second place is the UK’s education industry, with 10.5% employment growth.

The bottom five industries in the UK which have seen the slowest growth in small business employment since July 2021 are:

• Professional, scientific, and technical services (4.4%)
• Wholesale (4.0%)
• Construction (3.9%)
• Information (3.9%)
• Agriculture, forestry, fishing and hunting (3.7%)

Where pay is rising fastest in the US, Canada, and UK

As a reminder, this report uses the North American Industry Classification System (NAICS) to categorize small businesses into comparable industries. To find out which businesses are included in each industry, please see the US Census Bureau website.

Hotels and restaurants gave largest pay increases in US

Small business employees in America’s accommodation and food services industry can now expect $14.49/hour—an increase of 11.5% since July 2021. This is the largest pay increase seen in any industry over the past 12 months. The highest paid employees, however, are in the professional, scientific, and technical services industry, earning $26.59/hour. 

Canada’s mining, oil, and gas industry sees largest pay increases

The mining and energy industry in Canada has seen the fastest small business wage growth since July 2021, at more than 8%. And at C$35/hour, it offers by far the best pay as well. 

Finance and insurance has fastest wage growth in UK

The importance of the finance and insurance industry to the UK economy can once again be seen in the pace of wage growth since July 2021. Hourly pay for small business employees was more than 10% higher in July 2022 compared to a year earlier. Wages are also among the highest across all industries, at £10.19/hour.

Methodology

QuickBooks Payroll data

This is not survey data but anonymized, aggregate data from 500,000 small businesses (1-19 employees) that use QuickBooks Online Payroll to pay their employees. The sample includes 400,000 small businesses in the US, 70,000 small businesses in Canada, and 30,000 small businesses in the UK. 

Monthly hourly wages

Hourly wages are calculated using hourly wage equivalents (total pay divided by total hours worked) for all employees. Hourly wages are expressed as median values.

Monthly workforce growth rates

Monthly workforce growth rates reflect the change in paid employees between the current month and the same month the previous year, divided by the average paid employees in both months (e.g. July 2022 vs July 2021). For example, if the average number of employees in a particular company increases from 4 to 6 employees between July 2022 and July 2021, the monthly growth rate is 2 / 5 = 40%. To be included in the growth rate calculations, the companies must have paid employees using QuickBooks Online Payroll in both the current month and the corresponding month in the previous year—otherwise, they are excluded from the analysis. Growth rates are expressed as weighted averages, by the average paid employees in both months for each company. The data is not seasonally adjusted.

Industry classifications

For this analysis, businesses were grouped using the North American Industry Classification System (NAICS), which has 20 categories. See the US Census Bureau website for more information and to learn which types of businesses are included in each industry category.