Ever Changing Situation: How Will New Laws on Minimum Wage and Sick Leave Affect Your Franchise?

Minimum wage jobs were never intended to be a person’s sole source of income. But, in many cases, that’s what they’ve turned into, and political decisions—often made by people who have never run a business—are forcing free entrepreneurs to face issues of raising the minimum wage at an unprecedented pace and providing paid sick time for part-time employees.

The issue was a cornerstone in the 2016 elections, and it’s a battle on the minds of franchisors and franchisees across the country. The result could impact small businesses for years to come. Some states and cities have already instituted raises, and others will ramp pay rates up over the next few years.

Their bottom line simply will not support mandatory wage raises, coupled with paid sick time. Small businesses are again bearing the weight of a new load.

Impact on Franchises

Franchises, in particular, face challenges. Small franchise owners, focused on participating first-hand in running their businesses and putting out fires, are already strained to stay current with legal and workplace trends. Many manage their own HR functions on top of their day-to-day responsibilities, but still must ensure that their businesses stay compliant with employment laws.

Popular franchises are often perceived as having “deep pockets,” even though they actually are just small business owners. Because of this false perception, they sometimes face unfair lawsuits to try to force them to provide perks that larger businesses offer.

Minimum Wage

While there has been no recent change in the federal minimum wage, over the past two years there has been significant movement at the state and municipal levels. Potential consequences of violating minimum wage laws can be costly. Franchise businesses need to stay on top of the changing laws in their locations, and ensure that they are paying what they are required to pay.

Raising wages may sound good, but it’s not that simple. Increasing the minimum wage actually means decreasing job opportunities for many good, loyal employees because businesses can’t afford to employ as many workers. Most minimum wage employees work in industries with very low-profit margins. When these employers’ costs increase, they must raise prices or cut costs. Raising prices may not be an option because customers might stay home if the goods and services they prefer become more expensive.

Your small business may be right across the river or state line from a competing business in a different jurisdiction. Because your competitor has to pay lower required wages and thus has lower prices, your customers may opt to drive a small distance to save money. Some businesses will move, while others will close down and some will severely downsize. Some will replace employees with machines, or put more effort into online options. Some fast food restaurants in states that have already enacted higher minimum wages are already compensating by offering kiosks where you can place your custom order.

Retail businesses, like supermarkets, can pass these costs along if the change is federal or statewide, but it is much harder for a business where the distance to an alternative store is only a few miles.

Even if businesses don’t reduce their number of employees, they can be a lot more selective in whom they hire if they have to pay $15 and minimum wages don’t change a few miles away. When a business can hire graduates with good experience for the same price as someone with less education or experience, they are wisely going to hire the most qualified applicant. That may leave many people who currently hold minimum wage jobs out in the cold.

Paid Sick Leave

Similar to minimum wage laws, paid sick leave is an area where the law is currently in flux. Paid sick leave requirements vary widely by region, thus requiring franchise businesses to pay careful attention to enforcing applicable rules for their location. This includes providing costly training to franchise location supervisors on the legal requirements at specific franchise locations.

Leave laws are complicated and require an employer to determine how much leave they must provide, how time is accrued, the purposes for which paid sick leave may be taken, employer and employee notice requirements and record-keeping requirements and how the leave impacts other leave policies.  

An Up Side

On the bright side, research shows that treating your workers better by providing higher wages, better benefits and job security can improve your business in terms of lower turnover and increased customer satisfaction.

Perhaps the shifting tide can produce a “win-win” for both sides, but there are rough waters to navigate before we get to that point.

Jason Leverant is president and COO of AtWork Group, a national staffing franchisor with more than 93 franchise and company-owned locations.


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