Minimum Wage vs. Living Wage: What Franchise Owners Need to Know

Navigating the brave new world of employee compensation is an issue on the minds of many franchise owners – and for good reason. As states and cities pass laws to increase the minimum wage this year and beyond, franchisees are left wondering how these new wage mandates will impact the structure, staffing and future of their businesses.

For business owners, the evolution of employment law is becoming a large-scale challenge. As a staffing franchise, we work with owners to determine accurate wage targets in response to changes in minimum wage in states — and some cities– throughout the country. Almost every discussion we have with owners includes questions about minimum wage, living wage, and why they matter.

From understanding the origins of the minimum wage and living wage in the United States to adjusting your strategy to responsibly address these issues within your own company, franchise owners are entering uncharted waters where being informed and planning ahead are the keys to managing the new labor environment.

A look back to move forward

Minimum wage is the lowest wage permitted by law and is enforced by legislation. Historically, minimum-wage jobs were intended to be bridges to higher-paying positions. When workers start out in positions that earn a fixed minimum wage, the goal is to learn the skills needed to become more productive workers, which, in turn, helps people command higher pay and move upward on a defined career path.

According to the U.S. Bureau of Labor Statistics, more than half of minimum-wage workers are under 25 years old and are typically secondary earners in their families. In fact more than 60 percent of minimum-wage workers in this age range are enrolled in school. Generally, these minimum-wage positions provide supplemental income to households where additional family members bring in higher sources of income.

Somewhere along the line, the concept of minimum wage turned into a political issue where people began to focus on those who depend on minimum-wage jobs as their sole sources of income. The reality is this group is the minority of minimum-wage workers, and minimum wage has never been considered a living wage because it was never intended to be a person’s primary source of income.

Living wage, on the other hand, is a term used in public policy to describe the minimum income necessary for a worker to meet basic needs, such as housing, food and clothing — and varies based on location. There are discrepancies in the perception of what a living wage is and businesses should approach living wage within reason. In some instances, minimum wage and living wage rates can be close in amount.

Some U.S. cities, such as Washington D.C. and Albuquerque, have passed living wage ordinances, though, these laws often only apply to businesses that receive state assistance or have government contracts.

Wage impact on franchises

Where does this leave franchise owners? The strain of managing HR functions and staying on top of new employment laws — in addition to day-to-day responsibilities — is often too much to handle. Questions surrounding minimum wage, living wage and overtime rules have already caused many franchise businesses to close.

One false perception is that most franchises have the budgets of large corporations. The truth is most franchisees are small business owners using limited resources to make a living. While the Department of Labor says three out of five small business owners support a gradual increase in minimum wage, an aggressive increase would be an additional obstacle for many small business owners who need to balance budget constraints with hiring the most qualified employees.

Misconceptions aside, productivity in our country is sluggish. Some economists argue higher wages have the potential to increase productivity, absenteeism, turnover rates and customer satisfaction — all of which would benefit businesses.

How to educate employees  

In today’s politicized world, the wage conversation can quickly become the elephant in the room. Many employees are unaware of the origins of minimum wage and may believe the term is interchangeable with living wage. Franchise owners need to take responsibility by having candid conversations with current and prospective employees so they understand the difference in a clear and straightforward way.

This is one conversation you don’t want to delay. Ideally, you can bring up the minimum wage vs. living wage issue during the onboarding process to prevent future conflicts and misunderstandings.

Employees working in unskilled positions should know that minimum wage isn’t (and was never intended to be) a living wage or one’s main source of income. Rather, franchise owners should take the opportunity to discuss the importance of advanced training and education as pathways toward a more financially secure future for workers. As employees gain experience and enhance their qualifications, this provides a whole new set of benefits that owners and employees can enjoy together.

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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