Franchise Owners Face Increasing Labor Costs as States Weigh Minimum Wage Increases
As labor issues continue to dominate business headlines, with health care unions joining writers and autoworkers in striking for higher wages, benefits, and various protections, business owners are closely paying attention. As business owners manage ongoing labor issues — from increased wages to finding quality applicants for open roles — franchise owners in particular are watching as states, counties, and cities across the country look to increase minimum wages in 2023 and 2024. The franchise industry remains a steady source of job growth, and analysts anticipate this trend to continue with modest growth projected through 2023. As the economic landscape evolves and labor markets fluctuate, franchisees must adapt to rising expenses while ensuring they maintain profitability and competitiveness.
Labor Costs are on the Rise
Summer 2023 saw Connecticut, Nevada, Oregon, and Washington D.C. raise minimum wages for 765,000 workers. With California recently passing a new wage law in September, going into effect April 2024, minimum wage for quick-service restaurant workers will increase to $20 an hour, a rate higher than the overall statewide minimum wage of $15.50 an hour. Assembly Bill 1228 affects employees who work at restaurants with 60 or more locations, with labor organizations, restaurateurs, and franchises negotiating a deal to address a variety of labor concerns. Response from franchisees, who have already been facing challenges in managing their businesses’ labor costs, are divided, with many looking ahead to see how this law and others that may follow will impact profits, hiring practices, and overall operations.
Quality and Cost of Labor Remain Challenges for Franchisees
The International Franchise Association (IFA) and FRANdata conducted their second annual study on labor trends in franchising. Franchisors surveyed shared that labor issues remain one of their biggest challenges. Between the quality, cost, and availability of labor, some of the top issues businesses owners face in the current economic climate are in regard to staffing and how it impacts operations and financial projections.
Navigating Rising Labor Costs
With franchises experiencing wage increases in the past year and expecting more in the future due to new minimum wage laws, franchisees must find ways to attract and retain qualified employees while managing overhead costs. There are a variety of ways franchises can combat the labor challenges they face:
- Optimizing staffing levels: Achieve optimal staffing levels by carefully assessing customer demand and ensuring that franchises have the right number of employees.
- Cross-training employees: By cross-training employees, organizations can foster flexibility and maintain operational efficiency, even with a reduced workforce.
- Employee retention: High turnover rates can be expensive. Competitive wages and benefits help retain valuable staff.
- Training and development: Investing in ongoing training and development programs to enhance skills and productivity.
- Flexible scheduling: Offer flexible work arrangements, such as part-time or remote work options, to attract a broader pool of candidates and reduce labor costs.
Although managing increasing labor costs may remain a challenge for franchise owners, the franchise industry continues to add new jobs. With projected growth for 2023, total franchise employment is forecasted to reach 8.7 million . By incorporating a mix of technology, optimization strategies, and initiatives that prioritize employees, franchises can effectively tackle these labor issues while remaining profitable and competitive in the market. Business owners, buyers, and sellers continue to evaluate their options in the current economic climate, and franchising offers numerous benefits, including a proven business model and training programs designed to help franchisees succeed. Visit BizBuySell’s Franchise Directory to learn more about franchise opportunities.