Franchise Industry Not Without Hurdles in 2015
The franchise industry is predicting a bright 2015, though several regulatory storm clouds loom.
Franchised businesses in 2015 will continue to grow and create more jobs at a faster pace than the rest of the economy for the fifth consecutive year, according to a forecast released Wednesday by industry group the International Franchise Association (IFA) and IHS Economics. As a result, the franchise industry is expected to contribute about 3 percent to total U.S. GDP in 2015, as the GDP of the franchise sector is projected to rise by 5.1 percent.
"Franchising is an American success story," said IFA president Steve Caldeira on a press call on Wednesday. "Independent, locally owned small-business men and women, including more veterans and minorities I might add, who own and operate franchise establishments… are growing faster than other businesses. They are creating more jobs at a faster pace than other businesses and they are also producing more sales growth than other businesses."
The IFA's confidence doesn't come as much of a surprise, seeing as the franchise industry ended 2014 on a high note. The ADP National Franchise Report, also released Wednesday, reveals that the franchise industry accounted for 38,000 new jobs in December, the highest figure of 2014. Almost two-thirds of these new jobs were in the restaurant industry.
The IFA predicts that in 2015, franchise businesses will add 247,000 new direct jobs in the U.S., up from than the 235,000 franchise jobs added last year.
Still, there are some regulatory issues promising to rain on the franchise industry's parade in 2015. Three of the biggest concerns, according to the IFA, are the National Labor Relations Board's "joint employer" decision, minimum wage laws and Obamacare's definition of full time employees.
Ninety-seven percent of franchisees polled by the IFA believe that the joint-employer ruling would have a negative effect on their business if it were to go into effect. However, currently the biggest issue is uncertainty: since the joint employer ruling as of now only apply to McDonald's and the official reasoning behind the decision hasn't been released, it is unclear how it would affect other franchised companies.
Another roadblock that franchisees are grappling with is minimum wage laws. In 2014, minimum wage boosts passed across cities and states throughout the U.S., and will begin to take effect in the coming months and years.
"While our members aren't really thrilled [about minimum wage increases]… what we're really concerned about is the discriminatory aspect of the minimum-wage increase that was passed by the Seattle City council," said Caldeira. Under the law, franchisees have been put on the fast-track to increase minimum wage to $15, alongside businesses with more than 500 employees. However, other small businesses were given seven years to comply with the change.
The final regulatory issue weighing on franchisees' minds is the definition of a full-time employee. Currently, all employees working more than 30 hours must be covered by the Affordable Care Act. However, many franchisees argue that the cut off should be 40 hours. Matthew Patinkin, who owns an Auntie Anne's Pretzel franchise, says he and other franchisees are cutting employees' hours and refusing to hire new employees to avoid paying thousands of dollars in health care.
"I still look forward to 2015, and remain optimistic that we can open new stores, hire more people and help the economy. That's my goal, and I know that every other small business owner wants the same thing," he said the press call. "I can say with great certainty, if Washington just stays out of the way, we'll have a much better chance of achieving our goals."
Check out the infographic below for more details on the outlook for franchising in 2015.