While nobody knows how the recent presidential election may affect the issue, the last decade has seen increased pressure for raising the minimum wage. California and New York State and the city of Seattle approved $15/hour minimums (with different implementation schedules) and similar proposals are being advanced in other cities. Supporters of the concept claim that workers need to be paid a “living wage,” citing studies such as one by the Berkeley Center for Labor Research and Education, which found that 52 percent of fast-food workers needed extra money from government assistance programs.

Many types of franchisees depend upon minimum-wage employees for a substantial part of their workforce, and the prospect of a significant increase in labor costs is nothing short of terrifying. The expectation is that many will be forced to raise prices, effectively passing the increases along to consumers. However, that might create a double-whammy for franchisee owners who are required to pay a percentage of sales to their franchisors. Some companies are experimenting with order kiosks and other technology that can reduce headcount, but the costs to implement this technology can be extensive. Higher prices will inflate sales numbers, so between increased labor costs and heftier fees, franchisee owners may actually lose ground.

Franchisee owners are also at a disadvantage in states that classify their operations as part of a big business. For example, a Subway franchisee in Seattle employs just 17 people at his two locations, which should exempt him from the 500-employee minimum for faster implementation of higher wage. However, the city’s law lumps him in with other Subway operators nationwide, so he’s treated as a big company.

Some franchisees are approaching the wage hikes from a different angle. By paying higher wages, they can afford to hire more-talented and more-efficient employees, so they may need fewer employees overall. Higher pay rates may also reduce the costly turnover and absenteeism that plagues many franchisees. It may be that the challenge of paying higher wages will create opportunities for innovative franchisees.

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