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Five Things Franchisees Need To Know About Minimum Wage Requirements

As more cities raise the minimum wage to $15, the franchising industry will continue to fight for its unique and successful business model.

By Cassidy McAloonSenior Writer
SPONSOREDUpdated 12:12PM 06/01/16
Small businesses have a strong presence in the country’s workforce. According to the Small Business Administration, smaller companies continuously add more jobs to the American economy than large corporations. They also employ nearly half of the country’s private sector workforce.

That’s why it’s essential for the U.S. to create an environment in which small businesses are encouraged to grow. When issues that determine the way companies are able to handle their day-to-day operations, like minimum wage requirements, are debated, it’s important that they’re handled with both employers and their hard-working employees in mind.

Here are five things franchisees to know about minimum wage requirements.

What’s happening with minimum wage requirements in the U.S.:
The “Fight for $15” movement, which aims to raise the minimum wage to $15 an hour, is building momentum in cities across the country. About a dozen cities have approved bumps in their minimum wages so far, including major business hubs like Los Angeles, San Francisco and Seattle. Even states like New York are getting involved in the debate and creating plans to eventually hit the $15 mark.

These minimum wage hikes have a direct effect on the franchising industry— not only does it determine the cost of running a business for local franchisees, it also plays a role in qualifying individual franchise units as big or small companies.

What minimum wage requirements mean for franchising:
Drastically raising the minimum wage changes the way any small business runs their operations. Companies have to find a way to make up the additional costs that are now going to employees so they don’t end up deterring growth. Often times that results in businesses raising their prices, which is bad for attracting customers, or downsizing and firing employees.

But the franchising industry is especially invested in the nationwide minimum wage debate because of its unique model. Traditionally, franchisees have been defined as independent local business owners who operate separately from their franchisors. But recently, local franchisees have been thrown in with big businesses. That distinction is important because in certain minimum wage rulings, small businesses have been afforded more time to comply with the high $15 threshold than their franchisee counterparts.

"Franchisees need to understand that the fight right now is not about whether to rise the minimum wage, but simply that we want franchisees to be treated like other independently owned businesses," said Amy Cheng, a partner at Cheng Cohen LLC. "There needs to be a level playing field or franchised businesses will not survive."
The most recent update:
Seattle, which was the first major city to commit to a $15 minimum wage, has become a battleground for the minimum wage issue. In fact, it’s been taken all the way to the U.S. Supreme Court—the International Franchise Association (IFA) and five Seattle franchisees sued to block portions of the $15 minimum wage law that excluded franchises from other small businesses that were given an extra three years to pay their employees $15 an hour. But the Supreme Court refused to hear the decision of the lower appeals court, changing the way franchises can conduct their business in Seattle.

The International Franchise Association’s response:
The IFA has a long history of fighting high minimum wage requirements. When the $15 debate began making national headlines a few years ago, the organization’s response was swift and direct claiming that mandated increased wages would lead to higher prices for consumers, lower foot traffic and sales for franchise owners, and ultimately, lost jobs and opportunities for employees to become managers or franchise owners.

The organization has not stopped fighting potentially damaging minimum wage requirements. The IFA maintains its stance that putting local franchises on the same level as large conglomerates ultimately closes the door on entrepreneurs looking to start small businesses and create jobs.

After the Supreme Court refused to hear the IFA’s Seattle appeal, the organization released a statement saying, “Seattle’s ordinance is blatantly discriminatory and affirmatively harms Seattle hard-working franchise small business owners every day since it has gone into effect. We are simply attempting to level the playing field for the 600 local franchise business owners employing 19,000 people in Seattle.”

What’s next for the minimum wage debate:
As more cities and states consider raising their minimum wage requirement to $15, the franchising industry will continue to fight for its unique business model. That means furthering efforts to educate the public on the growth potential and benefits of the proven system, and working with government officials to create a healthy environment for franchises in the years to come.

In an appearance on Fox Business, Aziz Hashim, chairman of the IFA, said, “It can be a lot better if we have some certainty as to the policies the government would like to put forward. And as you know, business does well when we have certainty, and right now we feel as if there are a number of attacks on small business.”