Last August, Independent Joe interviewed Yuwen Chen, owner of three Dunkin’ Donuts shops in New York’s Hudson Valley, about paid sick leave legislation that was being considered in New York City and how its passage could affect his businesses 80 miles away.
“The costs can really hurt the business owner,” he said, “because not only do you have to pay for the employee to be out for the day, you have to pay the salary of their replacement.”
At the time, Chen’s biggest concern was that if the proposal – requiring employers to give their employees one hour paid leave for every 30 hours worked up to a maximum of 56 hours over a 12 month period – passed the New York City Council, it might be considered statewide by lawmakers in Albany.
Mandating Paid Time Off
Fast forward seven months and Chen, like all small business owners in New York State, is now faced with paying for another kind of government-mandated benefit for workers: paid family leave. While the New York State Assembly has not to date followed the New York City Council’s mandate for paid sick leave, the Assembly is considering several bills that would compel business owners (with at least 25 employees) to give up to six weeks of paid time off to employees with a newborn child or a seriously ill relative. The cost of the insurance would be offset by weekly employee contribution of up to 45 cents from their paychecks.
According to the Business Council of New York State, the plan would quadruple the maximum disability benefit payable over three years from the current maximum benefit of $170 a week to over $700 a week in 2018.
Among the challenges facing small business owners in every state, is understanding how such government mandates will impact the way they run their business—as well as their bottom line.
When individual states add a new regulation, tax or mandate, it creates a complicated situation for franchisees like Shaun Cain, whose family operates Dunkin’ Donuts shops in Connecticut and New York. Consider this: employers in New York must provide new paid sick leave for five or more employees; in Connecticut, it’s for employers with 50 or more workers.
“The worst part is implementing these changes in the same time period, it is just not realistic and small businesses cannot afford such a drastic increase in overhead,” says Cain.
The thought is shared by Staten Island, New York Councilman Steven Matteo, who voted against paid sick leave, “I continue to believe it unnecessarily burdens our city’s small businesses, at a time when our economic recovery is still slow and the sustainability is uncertain.”
Even as Jersey City and Newark, New Jersey have passed sick leave laws, state lawmakers are considering making it mandatory for all business owners in the state. The legislation will require all businesses, regardless of size, to provide between five and nine days of paid sick leave each year to each and every full and part-time employee, regardless of whether or not they already offer paid sick leave.
“These proposed new mandates would have a negative impact on Dunkin’ Donuts franchisees because they create confusion, increase administrative burdens, expose employers to liability, and add to the overall cost of doing business in New Jersey,” says Jeanette Hoffman, senior vice president for Capital Impact Group, which lobbies on behalf of New Jersey franchisees.
The push to mandate employee-centered benefits is prompting restaurant owners to consider price increases to cover their potential losses.
“Minimum wage hikes in some states, the effect of Obamacare and efforts to designate paid sick days all will increase costs,” according to DDIFO restaurant analyst John Gordon, who is principal of Pacific Management Consulting Group. He warns, however, that operators should not cut food portions because that customers will notice and that can have negative repercussions.
According to the National Federation of Independent Business (NFIB), these mandates equal rising labor costs for small businesses, and those costs eat into the profits of small business owners, especially in the food and retail industries.
“Minimum wage, for example, has a huge effect on these businesses,” says Bill Vernon, NFIB Massachusetts state director. “It may not impact a manufacturer the same way because profit margins are higher in manufacturing and fewer of the workers get paid minimum wage or near minimum wage.”
State vs Federal Mandates
On January 1, 2014, 13 states raised their minimum wage. The new wages vary from $7.90 in Arizona to $9.32 in Washington. In March, a 14th state – Connecticut – raised its minimum wage to $10.10, which is now the highest in the nation. Not to be outdone, Massachusetts legislators are considering an increase to as much as $11 an hour by 2016, which would make the Bay State the most expensive minimum wage state in America. It remains to be seen how these state changes would be impacted if the federal government institutes a $10.10 minimum wage as President Barack Obama and Congressional Democrats have proposed.
The federal government’s health care mandate – commonly referred to as Obamacare – is already causing concern and confusion among small business owners. Franchisee Shaun Cain told Independent Joe, “Obamacare and the mandatory increase on the state minimum wage are what plague me today.” We heard the same sentiment from franchisee Yuwen Chen.
The fact is, federal and state mandates complicate the challenges of running a small business and can greatly impact a franchisee’s profit margin. And, we shouldn’t conclude that once the battles over sick leave, paid family leave and minimum wage are over so will the push for further mandates. There is already mounting concern over depreciation and overtime policies (see sidebar).
Protection for franchisees
Even as franchise owners in some states prepare for the impact of rising costs from new government mandates, others are busy advocating for the passage of fair franchising legislation.
Legislatures in Pennsylvania, New Hampshire and Maine have bills under consideration. Just in the last few weeks Maine’s House of Representatives passed the bill, only to see it fail in the state senate.
The bill filed by New Hampshire State Representative Patrick Abrami defines fair franchising as defense “against unfair treatment by franchisors, who inherently have superior economic power and superior bargaining power in the negotiation of the terms and conditions of the franchise relationship.”
As DDIFO Executive Director Ed Shanahan told the New Hampshire Business Review, “You spend 30 years building a business that you want to turn over to your kids and the franchisor has the right to say no without a good reason. It’s just not right that they can arbitrarily take away what was earned with your blood, sweat and tears.”