New Study: Franchise Businesses Suffer Most Under $15 Minimum Wage Increases

Increasing the minimum wage has long been a popular tactic for liberals in the political sphere seeking “fairness” for workers.  To the casual observer, the idea that someone should earn a so-called “fair wage” appeals to their moral conscience without immediately conjuring up the economic impact of such actions on a large scale.

While there has recently been a national debate about raising the current federal minimum wage from $7.25, Congress has rebuffed those efforts, based largely on evidence from the nonpartisan Congressional Budget Office that 500,000 workers would lose their jobs, wiping out any improvement in wage levels for those entry-level workers who remain in the workforce. In response, an increasing number of states and cities are being pressured by liberal activists to raise their own minimum wage.

Most localities have passed new wages based on economic and cost of living conditions. However, in some places, a unique and potentially damaging characteristic of some wage proposals has a trend to include a provision requiring families in local communities who own franchises to pay wages higher and faster than those paid by non-franchise businesses.

Take the city of Seattle or the state of New York for instance. Each passed an increase in the minimum wage to $15 per hour, both discriminatory in their own way.  In Seattle, the legislation considers independently operated franchisees as ‘large employers’ because they contract with a brand, and subsequently forces them to implement the increase faster than local, non-franchise businesses. Meanwhile, in New York, Gov. Cuomo unilaterally targeted quick service restaurants through a “Fast Food Wage Board” which consisted of no small business owner representation. This wage increase required those families who operate a local restaurant with 30 or more locations nationally to pay a $15 minimum wage, and leaving other businesses at the more modest $9 state-wide minimum wage.

Perhaps the most perplexing notion in both cases is that wages were raised under the auspices of fairness.  What could possibly be fair about requiring one family who owns a small business to implement a wage at a faster pace than another, or leaving those employees who DON’T work for these businesses at a lower rate.

To address the impact of this new trend in policymaking, new research from the Employment Policies Institute (EPI) overwhelming disproves the notion that franchise businesses could absorb an increase in the minimum wage easier than non-franchise businesses.  According to the study, franchise businesses would be impacted more, with over two-thirds of franchise small business owners saying that they would be forced to reduce staff or reduce hours to compensate, compared to roughly half of non-franchise businesses.  Additionally, 54 percent of franchisees said they would likely use more automation, compared to just 37 percent of non-franchise businesses.

“This study confirms that local franchise businesses, who form the fabric of their communities, should not be unfairly targeted for higher labor costs than non-franchise businesses,” said IFA Director of State Government Relations and Public Policy Jeff Hanscom. “Arbitrarily forcing higher labor costs on franchise small businesses will reduce employment for those who need it most, while stripping neighbors of their ability to own a small business.”

As policymakers around the country continue to face pressure from local activists seeking to raise the minimum wage to exorbitant levels, it is clear they should avoid choosing winners and losers.

At Kemp Forum, Opportunity Agenda Thrives

All too often, when Americans look to politicians in Washington, D.C. for solutions to America’s numerous domestic issues, a convoluted package of policy proposals and regulations overwhelm the menu. Rather than addressing the root causes of economic distress or poverty, politicians provide patch-work solutions that often cost tax payers, while failing those in need.

This past weekend, however, some of the most powerful thought leaders and politicians in America gathered at the Kemp Forum on Expanding Opportunity in South Carolina to buck the trend, and prescribe an avenue for alleviating poverty that focuses on people, rather than stale policy. Organized by the Jack Kemp Foundation, the namesake organization for the late Congressman and “bleeding heart” conservative Jack Kemp, the Expanding Opportunity event sought to examine why the so-called “war on poverty” has failed so many of our fellow citizens, and what we as a nation can do to enable prosperity.

Moderated by Speaker of the House Paul Ryan (R-WI) and Sen. Tim Scott (R-SC), the event included panels with six Republican presidential hopefuls and American Enterprise Institute President Author Brooks, with a focus on reforming areas from education to spurring job growth. The participants rightly noted that America was founded on the principle that everyone would have the same opportunity to succeed in life, not the same guaranteed outcome. As part of this narrative, the moderators drove the dialogue that our country is at its best when innovators and entrepreneurs thrive, not when the government continues to implement workplace regulations and social assistance programs that entrench the cycle of poverty and big government.

While everyone on stage agreed that small businesses are driving the economy, it was obvious that a litany of failed policies continue to plague the opportunity agenda.  Sen. Scott noted that in a time when young people need to develop professional skills and learn the responsibility that comes with work ethic, inane policies such as $15 minimum wage proposals will force youth unemployment rates to skyrocket, leaving yet another generation at a gaping disadvantage to compete in the labor force. As business owners reconcile with increasing costs, some will be forced to shutter their dream. Several candidates made the plea that power return to the states, arguing that bureaucrats in Washington, D.C., who are out of touch with small communities, are generating burdensome rules that make entrepreneurship nearly impossible.

Presidential politics always brings with it a plethora of idealistic proposals and rhetorically pleasing soundbites. But, at the Kemp Forum on Expanding Opportunity, audience members were treated to solutions that could start a wave of growth for the next generation. Poverty is not eradicated by simply instituting equality with social programs and regulations.  In order to solve poverty, it must be tackled at its root cause: replenishing a lack of opportunity that will enable hard-working Americans the chance to make their own American Dream.  Franchising is a clear path to giving Americans that chance. The IFA looks forward to engaging the candidates and working with campaigns to ensure that America continues to be a land of opportunity. Guided by the new messaging and leadership of Speaker Ryan, our Country and its entrepreneurs can grasp greatness and ensure that everyone has the freedom to pursue their goals, irrespective of politics.

SEIU Endorses Clinton Candidacy – What About America’s Small Businesses?

On Tuesday, the Service Employees International Union (SEIU), one of the largest private sector unions, endorsed Hillary Clinton in the 2016 Presidential race. This decision by the SEIU executive board came amidst objections from local SEIU chapters, some of whom say that the endorsement came too early in the election cycle. The controversy is heighted by Clinton’s failure to support SEIU’s keynote initiative, the ‘Fight for $15,’ aimed at raising the minimum wage to $15 per hour. Instead, Clinton has spoken out numerous times in support of a $12 per hour minimum wage.  The endorsement reflects an alarming trend that a Clinton Administration would feature more pro-union policies, following the lead of the Obama Administration.

However, while the SEIU’s approach to solving income inequality is centered on disruptive protests and PR stunts against businesses, IFA’s President & CEO Robert Cresanti argued against harming America’s small business owners: “There is no question we should be looking at solutions to address the growing economic divide in America. However, staging street theatre and shutting down restaurants owned by local families who have invested their life savings and created jobs in communities cannot be the answer.”

The franchise industry is responsible for creating nearly 9 million direct jobs for Americans, outpacing job growth relative to the rest of the economy year after year.  If drastic minimum wage increases take effect, many of these workers will be priced out of the labor market, thereby increasing unemployment and failing to provide millions of workers with the skills needed to excel in a competitive environment.  Regulatory burdens such as the National Labor Relations Board and the Occupational Health and Safety Administration attempts to redefine the “joint employer” standard – which the SEIU has advocated for – have put the country’s more than 780,000 franchise establishments at risk. Despite franchising outpacing the gross domestic product of the rest of the economy, America’s small business owners face a perilous environment if these anti-growth policies persist.

In the future, the inequality debate should focus on creating opportunities to enter the middle class, rather than disruptive political theatre that targets America’s entrepreneurs.

Congressman Ellison’s Franchise Legislation: Harmful and Unnecessary

By Elizabeth Taylor, Vice President of Federal Government Relations & Public Policy, Counsel

Congressman Keith Ellison (D-MN-05) recently introduced the SBA Franchise Loan Disclosure Act of 2015 (H.R. 3195). He claims the bill will help small business franchise owners by adding transparency to the process of applying for Small Business Administration (SBA) guaranteed loans. In fact, the legislation will harm small businesses. Chock full of unnecessary regulations, the measure unfairly targets franchise loans and would deter small business growth and job creation.

Franchising is flourishing. There are currently more than 780,000 franchise businesses throughout the U.S. in over 300 different industries ranging from restaurants to in-home healthcare.  Franchising allows thousands of entrepreneurs to become small business owners, and supports 8.9 million jobs nationwide. Franchise growth has outpaced the growth of other small businesses for the past 5 years and the trend is expected to continue.

Franchisees aren’t just successful — they’re also satisfied.  A recent survey of franchisees published by the Franchise Business Review found that 80 percent would rate their franchisors highly and recommend their brand to others. Three-fourths of franchisees would “do it all over again.”

This is why imposing additional red tape on franchises would serve only to stifle business creation and employment opportunities for many Americans. The Ellison bill singles out franchise businesses by imposing burdens on the franchise loan process – even though franchise businesses account for only 6 percent of the SBA 7(a) loan portfolio. There is no evidence that franchise loan failure rates are significantly higher than other businesses.  In fact, according to a recent SBA loan study by FRANdata, franchise small business are less likely to default on their SBA loans than non-franchise businesses.  The default rate for franchise loans is 13.73 percent compared to 17.11 percent among non-franchise loans. In other words, the franchise loan default rate is 20 percent lower than non-franchise loans.

While defaults in business loans are unfortunate, they happen in all types of of businesses, not just franchising. The SBA 7(a) loan program has been overwhelmingly beneficial for franchise small business owners and the overall economy. Six out of seven franchises that receive SBA loans do not default and actually go on to grow their businesses.

For the relatively small percentage of franchise brands that do default, this legislation would be of no assistance. What’s more, singling out one or two franchise brands would be misguided. To the extent any problem can be identified, it would be with larger lenders. Big lenders like Banco Popular have a 40 percent default rate for franchise and non-franchise loans.  This rate is twice the average rate (16.8%) of the top 50 SBA lenders.

The Ellison bill would also create a conflict between two agencies, the SBA and the Federal Trade Commission because it would require changes to the FTC Franchise Rule. Although many franchisors disclose financial performance data to potential franchisees, the franchise rule does not require financial performance disclosure by the franchisor.  That would have to change under the Ellison bill, and the FTC no doubt would fight the alteration.

Mr. Ellison has a history of taking policy positions that would harm small businesses. It’s curious that a lawmaker with such a record would now take an interest in the arcane process of SBA loans for franchisees. Mr. Ellison does have one link to franchising – his largest campaign contributor has been the Service Employees International Union, which is on a well-documented mission to destroy the franchise business model. Perhaps the true motivation behind the Ellison bill isn’t to help franchising but to prevent more franchise small businesses from opening at all.

Business Leaders Urge Senate to Restore Full-Time Work Week

By Kevin Serafino

As the U.S. Senate prepares to adjourn for its August recess, business leaders and employers from across the country are urging their elected officials to consider a critical change to the Affordable Care Act (ACA) that would restore the 40-hour full-time work week and put more pay in the pockets of American workers.

Yesterday, members of the More Time For Full Time coalition, led by the International Franchise Association and including more than 400 business trade associations from all 50 states, sent a letter to Senate Majority Leader Mitch McConnell and Democratic Leader Harry Reid pressing them to consider S.B. 30, the Forty Hours Is Full Time Act, upon their return to Washington in September. The legislation would harmonize the definition of full-time employment in the ACA with the traditional 40 hours per week definition, benefiting employees by allowing for more hours and income and helping employers by removing a burdensome new regulation.

Under the ACA’s current definition of full-time employee, set at 30 hours per week, many employees are being hurt by lost wages and hours because this new standard makes it more expensive for employers to allow part-time employees to work more than 30 hours through picking up additional shifts and adding flexibility to their schedules.

The Forty Hours Is Full Time Act currently has 42 co-sponsors in the Senate, while 73 Senators have indicated their belief in restoring the 40-hour work week.  Franchise business owners will meet with their elected officials at home throughout the Congressional recess to advocate for policies that will allow their businesses to thrive and create jobs in their local communities.

To read the More Time For Full Time coalition’s letter to Senate leadership, click here.  To contact your elected officials and urge them to restore the 40-hour work week, click here.