Paychex CEO says small business employment is starting to look like April again
The index also dropped 3.65% from March to April and has fallen 0.04% through the past quarter. States in the South and the West saw the biggest drop as the virus surged in those areas through July.

The Paychex-IHS report for July showed a month-over-month drop of 0.24% and a decline of -3.65% from a year earlier.

Paychex, a payroll processing and HR solutions company, released its monthly Small Business Employment Watch with IHS Markit on Tuesday. It offers insight ahead of the government's closely watched monthly jobs report on Friday.

"We saw the July jobs index drop," Mucci said on "Squawk Box." "That puts us back to about April, so we're flat over the last three months."

Paychex CEO Martin Mucci told CNBC on Tuesday that small business employment is falling again and is becoming as precarious as during the beginning of the U.S. coronavirus crisis.

Positives for the month included the rebound in the financial activities sector and in construction, as new home sales gained, and an increase in consumer demand, as evidenced by the number of hours worked.

"Hours worked were up about 9% on an annualized basis," Mucci said, "so the employees that are there are working more hours. That shows the demand."

Paychex sources the Employment Watch from the payroll data of 350,000 of its small business clients and compiles national employment and wage trends to get a fuller picture of regional changes, as well as impacts by sector.

As employment growth stagnates across the country for small businesses, Mucci said, the report showed the continued need for an extension to the Paycheck Protection Program to be included in the next stimulus plan.

"The stimulus certainly helped in June and July," Mucci said. "Right now, the biggest issue for small businesses is uncertainty. There's a lot of uncertainty about PPP loans, the flexibility of how they use those loans funds, when they pay it back."

With no agreement in Washington on a new relief package, some senators are pushing to make sure small business solutions are included in the next bill. The first round of PPP loans faced a complicated rollout, and the stipulation that the loan be used for payroll added to uncertainty for many businesses. In a recent letter, more than 100 current and former business executives urged Congress to support small business, saying that a lack of relief could have "catastrophic" consequences.

Mucci said it's clear what small businesses need from the stimulus plan right now. "They're really looking for more loans," he said. "They're not at a point where they can survive without the loans."

In addition to the difficulties that would be alleviated by a new package, Mucci said small businesses are still facing deeper issues that stimulus can't easily help.

"We're hearing from clients that there are shortages in the supply chain," said Mucci. "You can't get a lot of material because supply chains had closed in March and April, and they're backed up. So even when they have demand, they can't get the supplies to fuel their business."

Despite all the uncertainty, Mucci said he is confident a solution for small business will be reached.

"I think the government will get together to figure out how to get more stimulus out there, for individuals and small businesses," Mucci said.

And the Paychex data supports his optimism.

"New business start-ups are up almost 10%, over the same time last year," Mucci said. "That's a sign that entrepreneurs are finding opportunities."

"I think things will get going again," he added. "It will just be a bit slower than we'd hoped."