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In 2016, seventeen states will increase their minimum wage; this will include some highly populated states I.E. New York and California. In Massachusetts the increase has gone to $10 per hour for 2016 and then will rise to $11 per hour in 2017. At the other end of the spectrum, several states have enacted legislation that will prevent individual cities from increasing the minimum wage, akin to what took place in Seattle, Washington. Although there has been heavy lobbying by industry trade groups and even legal challenges against some of these wage increases, it remains to be seen what the outcome will be.
The bottom line is that countless franchisees will experience increased labor costs and especially in those categories that employ a large number of employees, for example, in the food and home care sectors. Individuals interested in franchising in states with increased minimum wages will have to adjust their financial models since existing Item 19 certain financial information is based upon historical and not current labor costs. All of this adds up to a challenging year for some current and prospective franchisees. Since labor represents a substantial portion of a franchisees product or service, consider home care services and the QSR sector, an increase in labor costs can lower gross margin and cash flow.
There is little doubt, that there will be increased pressure throughout the country to raise minimum wages and with the outcome of the 2016 national elections in doubt, it remains to be seen what the future of labor costs will be.
Ed Teixeira is an Chief Operating Officer at Franchise Grade and can be reached at 631 246 5782 or at firstname.lastname@example.org
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