The franchise industry, responsible for creating one out of every eight new jobs, can play an important role in lifting the U.S. economy and getting those who most need work back on the payrolls. The industry includes restaurants, hotels, retail and service businesses, and other employers that offer an entry point into the job market for lower-skilled workers, enabling them to put their foot on the first rung of the career ladder or even become a franchise owner.
These workers have some of the highest unemployment rates in America. Adults without high school diplomas face an unemployment rate of 14.3 percent, more than three times as high as rates for college graduates and well above the national average of 9.1 percent. The unemployment rate for teens, another lower-skilled group, is 25 percent.
The new penalties on franchise small businesses will close the door on these workers at a time when economic opportunity is scarce. The most recent jobs report from the Department of Labor shows no jobs were created in July, with the unemployment rate is still hovering above 9 percent, and it would be 16.2 percent if it included those who can only find part-time jobs and those that have given up looking for work.
The new law mandates that businesses with 50 or more full-time employees must provide health insurance or pay an annual penalty of $2,000 for each full-time worker. In 2014, when the employer mandates are phased in, many franchises will be motivated to reduce the number of locations or move workers from full-time to part-time status. In addition to putting millions of jobs at risk, the employer mandate will add more than $6.4 billion in increased costs to franchise businesses, not including the cost of regulatory compliance. The Hudson Institute report notes that “this penalty significantly raises the cost of employing workers and further stifles job creation.”
In addition, the law has drastic implications for franchisees, who often own groups of establishments, and will be at a “comparative disadvantage” relative to other businesses with fewer locations and fewer employees. The law discourages franchisees from owning and operating multiple locations when the combined employment exceeds a threshold of 50 or more full-time workers.
In short, the law actually discourages expansion and incentivizes franchise businesses to employ fewer full-time workers and hire more part-time workers in an effort to balance their books. In the name of expanding health care coverage, lawmakers have created unintended consequences that will further slow our economy.
The time is now for Congress to repeal the law so thousands of franchise small businesses can once again hang a “help wanted” sign on the front door.
Steve Caldeira is President and CEO of the International Franchise Association