Coming Soon To A City Near You: $15 Minimum Wage
Most franchisees are probably are aware of the movement to raise the minimum wage in cities and states across the country. There are several variations of what the minimum wage should be, and some cities and states have already raised their minimum wage rates. For instance, Connecticut and Maryland just raised theirs to $10.10 per hour, Massachusetts increased its state minimum wage to $11 and hour, and Vermont to $10.50. All of these efforts have a common thread—the redistribution of wealth.
In my neck of the woods, the Seattle City Council recently passed a $15 minimum wage law to take affect on April 1, 2015 and to be phased in over a number of years. At first glance it only applies to businesses with more than 500 employees. However, it considers franchise businesses as a single business unit and counts the number of franchise employees nationwide. This is bad news for 7-Eleven franchisees with stores in the city.
The State of Washington already has the highest minimum wage in the country—currently $9.32 per hour—and it is tied to a price index and increases every year. Based on this fact, franchisees are faced with a 50 percent increase in payroll in 10 months. When challenged why franchisees of any business model are lumped together with the franchisor, Seattle Mayor Ed Murray replied that franchise businesses have a lower cost of goods and better distribution systems than independent businesses, and the franchisors need to look at their contracts with their franchisees.
The only way I see a franchisee can increase gross profit to pay for this new minimum wage is to raise prices. Whatever the retail price increase we will need to be able to cover this, SEI potentially stands to receive a substantial windfall given our system’s unique retail accounting system and the gross profit split. However, raising retail prices would come with disastrous consequences.
For years franchisees have expressed frustration that more and more work and responsibilities have been pushed to the franchisee side of the equation, while SEI reaped the financial rewards of our sweat. Maybe this is the game changing tsunami that will force SEI to reevaluate their business model, because without a change in the gross profit split to compensate for the national wave of minimum wage increases, this franchise system will cease to exist.
I do not pretend to have the answer, but only know that under the current franchise agreement the $15 minimum wage spells the doom of one the world’s greatest franchise systems in the world.
Correction To The Last Article:
In my last article, I incorrectly stated that franchisees have the “contractual right to request a re-audit within 72 hours of receiving their audit results.” What the franchise agreement actually states is that franchisees have a right to request a re-audit within 24 hours of receiving their audit results, and the re-audit must be performed within 72 hours.