What Franchisees Could Lose If the Minimum Wage Is Raised
Fast-food workers in about 100 cities will strike on Thursday, leaving franchisees caught between a rock and a hard place.
Protesters are calling for $15 an hour -- a huge increase from the current federal minimum wage of $7.25, or a full-time salary of about $15,000 a year. The upcoming strikes follow the protests that occurred in July and August.
While mega-chains have been painted as multi-million dollar villains in the protests, it is usually individual franchisees, often struggling with slim profit margins, who are forced to make the hard decisions on employee wages. For these small business owners operating with small budgets and fixed costs, a mandated increase in minimum wage cuts into profits and threatens business. It could also result in higher prices for customers.
“Raising the minimum wage will only hurt those it is intending to help,” says Matthew Haller, vice president of public affairs at the International Franchise Association, an industry group. “Increasing the cost of labor in the current economy would lead to higher prices for consumers, lower foot traffic and sales for franchise owners, and ultimately lost-entry level jobs.”
Business owners in general are divided on raising the minimum wage. A November Gallup poll found that small-business owners were split nearly 50-50 on raising the minimum wage to $9.50 an hour from the current $7.25. Forty-seven percent approve of a law that would make the change, while 50 percent disapprove.
For franchise owners, there's a fine line between what they might like to pay their employees and what they realistically can pay without damaging profits. At the same time, they have to pay competitively enough so that they aren't constantly wasting money hiring and training employees. “If you keep paying people low wages… you’ll blow through employees, which costs a lot of time and money,” says franchise ownership adviser Joel Libava. As for potential price increases on consumers, Libava is skeptical of the long-term effects on business owners. “Would consumers pay 25 cents more for a hamburger if prices go up? Probably.”
Indeed, a number of large businesses see an increased minimum wage as a pro-business position. Companies including superstore Costco and ice cream franchise Ben & Jerry’s have signed Business for a Fair Minimum Wage’s petition to raise minimum wage for all workers. According to Ben & Jerry’s website, employees are paid what the company considers to be livable wages: $15.97, twice the national minimum wage.
“Paying your employees well is not only the right thing to do but it makes for good business,” said Jim Sinegal, CEO of Costco in a statement on Business for a Fair Minimum Wage’s website.
Will fast-food franchisees agree? Thus far, there have been few measurable effects from the highly publicized protests. However, as more cities are involved and media coverage increases, franchisees may find themselves echoing Sinegal—or struggling to find a way to balance increased wages and continued profit.
Kate Taylor is a reporter at Business Insider. She was previously a reporter at Entrepreneur. Get in touch with tips and feedback on Twitter at @Kate_H_Taylor.