Franchise businesses have faced uncertainty and confusion when it comes to minimum wage regulations. Some of the most headline-worthy examples have been in cities which have set higher minimum wage requirements, with different rules for large and small businesses. Franchisees with four or five employees have sometimes been classified as large employers because they are associated with large corporate franchises.
The Department of Labor has now issued some new regulations which have not garnered many headlines… maybe just because they’re harder to understand.
The new rules center on exemptions from minimum wage laws. Currently, the Fair Labor Standards Act (FLSA) covers many workers, but not all. The FLSA includes rules about minimum wage, overtime, and child labor, and all of these areas can have exemptions. For example, kids can work on a small family farm, airline employees are exempt from overtime rules, and there is no minimum wage for casual babysitters.
At this time, most of these exemptions have to do with specific jobs and specific job duties. If you are thinking about a franchise business opportunity in one of the industries affected by the exemptions, you should be aware of the regulations so you can be sure that you are paying minimum wages and overtime when they’re required.
The change of the law will reduce exemptions, and they will no longer be tied to the specific kind of work being done. Administrative, sales, and other white collar jobs now have to pay $23,660 per year to be exempt from overtime and minimum wage requirements, and they are generally defined by industries or the duties being performed. When the new law goes into effect, the new threshold will be $50,440 per year.
The Department of Labor estimates that 21.4 million employees who are now exempt from FLSA will no longer be exempt by the end of next year.
For example, a fast food restaurant manager earning $23,000 per year may now be exempt from overtime, and could work 50 hours a week without overtime compensation. The current law was written at a time when being a manager had different connotations and pay scales were different.
This is not a reason to avoid investing in a franchise business opportunity. The new regulations will apply to competing businesses as well as to yours. But it is a reason to adjust the cost estimates you make.
The Department of Labor expects that the new regulations will go into effect in 2016. If you buy a franchise business now, you might find yourself suddenly having to come up with significantly more funds than you expected. And, since franchisors and franchisees alike are trying to be very thoughtful about avoiding joint employer status, your franchisor might hesitate even to alert you to the problem.
In preparation for the change, make sure you have a realistic understanding of what labor costs will be under the new regulations. In most cases, asking current franchisees about their costs is a good way to estimate yours. In this case, you may be talking with franchisees whose workers are putting in some hours without overtime… but you might be paying overtime for those hours by next year.