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What Ongoing Pushes for Increased Minimum Wages Mean for the Franchise Industry

Though the federal minimum wage has not changed since 2009, state and local jurisdictions have made major increases, creating friction and forcing innovation in the franchise space.

With ongoing pushes for minimum wage increases, franchisees across the country are trying to reconcile what substantial jumps in operating costs could mean for their businesses.

Though the federal minimum wage ($7.25) has not been increased in over a decade, individual states and other jurisdictions are increasing minimum wage requirements, and some states have implemented minimum wage requirements nearly three times what the federal government mandates.

In early April, for example, California enacted a $20 minimum wage for fast-food workers, impacting countless employees and business owners across the state. 

This is just one example of the benefits that advocates nationwide are pushing for in state-level legislation. Service workers are consistently underpaid and, contrary to common belief, many of these employees are not teenagers working their first jobs. According to DataUSA, the majority of fast food employees are women making an average salary of just $13,132 per year. Compared to the national average of $59,596 across all professions, this is a huge disparity, and it’s clear why these employees are seeking better compensation.

Notably, small business owners consistently support these increases, too. Despite concerns about labor costs, 61% of small business owners support increasing the minimum wage in their state. This is illustrative of the unique position many franchisees are in.

The average wage has definitely changed over the past couple years post-COVID, and I think it is the new norm that is here to stay,” Brian Shunia, co-founder and CEO of Wing Snob, said. “We don't see a demand for higher wages from our employees as we pay very well within our restaurants. The ability to recruit new staff at a lower wage has become more difficult with the current costs of living so we have adjusted our operations to this new norm.”

While some minimum wage laws have workarounds for “small business owners,” most franchisees do not fall into this category. Even if they own just two locations and run them like small local businesses, they are part of a larger system that is subject to standard wage regulations. This leaves local franchise owners concerned about the futures of their businesses.

“As the cost of living increases in various markets, the biggest concern is the need to pass the costs on to the consumer to keep our businesses afloat,” Shunia said.

Regardless, Shunia said Wing Snob is willing to pay these prices “to recruit stronger team members within [its] organization.”

Franchisees often rely on low-wage employees to conduct daily operations, and regardless of owners’ stances on fair pay, steep minimum wage increases have practical impacts on franchisees’ businesses.

With these increases, franchisees are left to somehow adjust their operations to remain profitable, but in many cases, these location-specific strategies would be necessary regardless of variation in employees’ hourly rates.

Whether an employee is making $10/hour or $20/hour, our budgeting strategies remain the same based on the financial state of the specific restaurant,” Shunia said. “Wages vary heavily depending on the market. In Texas we see the average wage running about 20% lower than in the MidWest; that is mostly due to the local cost of living differences.”

When the cost of labor increases, there are a few obvious solutions: decrease the size of the workforce, pass price increases along to consumers or streamline the business to cut costs in other ways. 

No single solution can entirely alleviate the friction that major wage increases cause for franchisees, and changes to operational models need to be dynamic and multi-faceted. 

In addition to innovation from franchisees, ongoing wage requirement shifts could impact the franchise industry on a larger scale. The International Franchise Association advocates against stark wage increases, noting that the impact could be “counterproductive at best and devastating at worst,” especially in the context of franchisees’ ongoing recovery from the pandemic and its aftershocks.

As wage-related conversations continue at national and state levels, the franchise industry continues to advocate for its unique model, supporting local business owners in their continued growth without sacrificing the value of a well-known, established system.

Read more on 1851 Franchise about the history and impacts of minimum wage shifts in the franchise industry: