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.

President Obama Issues Executive Order to Raise Minimum Wage for Federal Contractors

Yesterday, President Barack Obama issued an Executive Order to raise the minimum wage for workers of federal contractors to $10.10 per hour.  The order follows the President’s commitment during last month’s State of the Union address, in which he vowed to act to raise the wage floor even without Congressional authorization.  The President’s Executive Order impacts hotels, restaurants, and personal services located on military bases and other federal facilities to which the order applies.

As Congress debates an increase in the minimum wage, the business community has been outspoken in its opposition to current proposals.  A Public Opinion Strategies survey concluded that more than two-thirds of franchise businesses and 50 percent of non-franchise businesses would make personnel decisions in order to adjust to an increased minimum wage.

An increase in the minimum wage might provide more take-home pay for workers, but it would ultimately hurt the very people it intends to help.  A minimum wage hike will jeopardizes entry-level jobs and make it more difficult for lower-skilled workers to move up the economic ladder.  It will also lead to increased automation of tasks formerly performed by a low-skilled workforce.

Click here to take action by telling your Senators and Representative to protect franchise businesses by rejecting an increase in the minimum wage.

What are main street franchise owners saying about the proposed minimum wage hike in the State of the Union?

While the President’s State of the Union address touched on a number of priorities of the franchise industry, such as the need for comprehensive tax and immigration reform, many franchisees are concerned that President Obama’s proposal to raise the minimum wage at this time would be a job killer.

After the speech, IFA President & CEO Steve Caldeira released the following statement:

“The franchising community welcomes the president’s call for action in Congress to address challenges with our immigration system and the complexities in the tax code. IFA stands ready to work with Members of Congress to enact these much-needed reforms for America’s 825,000 franchise businesses to accelerate job creation in our industry.”

Franchise businesses have been hit hard with constant incremental cost increases that make it more difficult for them to expand and create new jobs, such as Obamacare compliance costs, tax increases, hikes in commodity and energy prices and the lack of available capital. All of these policies and external factors are chipping away at the profit margins of America’s 825,000 franchise establishments, which support nearly 18 million workers.

This morning, we asked a few of IFA’s members what they thought about the proposal to raise the minimum wage, and here is what they said:

“The vast majority of employees in my business who make the minimum wage are not full- time employees. Requiring me to pay a high-school student, who I am training to be a worker in our society, a minimum wage of $9 will crush my business. 

“If my employees have a great work ethic, then I immediately pay them more.  This is a simple ‘market’ decision. If they are poor performers, then paying them $7.25 or $9 per hour will make no difference in their performance, but it will erode our ability as small-business owners to make a profit and therefore open new locations.”

Sean Falk a multi-unit franchise owner of Salsarita’s Fresh Cantina, Great American Cookies, Mrs. Field’s Famous Brands and Pretzelmaker

“Raising the minimum wage will not deliver customers with more money in their pockets. It will continue to discourage small businesses from hiring or even keeping minimum wage personnel.  Increasing the minimum wages does not help stimulate business.”

Earl Wertheim, Franchise Developer, The UPS Store