Following declines in 2006, small-business hiring rose by 4.3 percent last year, even as labor costs went up, according to SurePayroll.

Based on payroll data from more than 18,000 small businesses, salaries rose by 4.2 percent to an average $32,609, the Chicago-based payroll services firm reported. In 2006, salaries rose by 7.4 percent.

"We are seeing a dampening in salary inflation relative to the previous year. That's good news for small-business owners," SurePayroll President Michael Alter said in a statement.

Hiring gains were reported in every region, led by a 6.2 percent increase in the West.

At the same time, small employers showed an increasing reliance on independent contractors last year, rising from 3.41 percent to 3.45 percent of all workers.

"When there is economic uncertainty, small-business owners shift from hiring full-time equivalents to hiring more part-timers and more independent contractors," Alter said.