By Jason Daley
Entrepreur Magazine, January 9, 2016
Last April, the city of Seattle began rolling out an incremental minimum-wage increase. Employers with 500 workers or fewer would bump hourly wages up to $15 over the course of seven years; larger businesses would have to reach the mark in three years, with an immediate raise to $11 per hour. (The federal minimum wage is $7.25.) It has been a controversial law on many fronts, but no more so than in the franchise world. For the purposes of the law, any franchised business is considered a large employer -- even if the local franchisee has only a handful of employees -- because, the city argues, franchisees that are part of a larger system have the financial wherewithal to absorb the pay raise sooner than other small businesses can.
Seattle is not alone in putting pressure on franchisees. In June, the Los Angeles City Council voted to increase the minimum wage there to $15 per hour by 2020. In September, the state of New York raised the minimum wage for fast- food workers to $15 per hour, to be phased in over three years in New York City and six years in the rest of the state. Other municipalities, including Washington, D.C., and Portland, Ore., are looking at similar increases.
Opponents say significant minimum-wage increases will be the death knell of franchise growth, and could lead to unit closures. Proponents argue that increasing the minimum wage will lead to lower employee turnover and better customer service, and will reduce the burden on government programs like food stamps and housing assistance that many low-wage workers depend on. ...
Holly Sklar, CEO of the advocacy group Business for a Fair Minimum Wage, denies that increasing the minimum wage will lead to a franchise apocalypse and says that overall it would be a positive move for workers and businesses. “The minimum wage is currently outdated,” she says. “The $7.25 federal wage has way less buying power than it did in 1968. Workers and consumers aren’t two different species of people. When workers’ buying power is eroded, consumer spending is eroded. And that’s at the heart of the economy. Nothing drives job creation more than consumer demand.”
For franchisees and other small businesses, Sklar adds, paying a higher wage can be transformative. “One of the pleasures of paying more is lower turnover. Strong employees free up a business owner to spend time thinking about the long term instead of training new employees. There’s less waste, more productivity, and it boosts customer satisfaction.”
While President Obama supports an increase in the federal minimum wage to $12, that change is unlikely to get through Congress anytime soon. Which means we’re likely to see this fight drag on, state by state and city by city, over the next few years.
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