For immediate release
Alisa Harrison, 202-628-8000
Matthew Haller, 202-662-0770
WASHINGTON, Sept. 12, 2011-Unless Congress repeals or significantly changes the health care law, 3.2 million full-time employees at tens of thousands of franchise businesses will be at risk of losing their jobs, according to a new report prepared by Hudson Institute for the International Franchise Association.
"Hudson Institute's report shows how the health care law will force franchise small business owners to choose between reducing the number of full-time employees or down-sizing their businesses or both - none of which is a prescription for economic recovery," said IFA President and CEO Steve Caldeira. "We strongly oppose the employer mandates and penalties in the health care law and urge Congress to repeal the law."
The new law mandates that businesses with 50 or more full-time employees must provide health insurance or pay an annual penalty of $2000 for each full-time worker. The study shows that, in 2014, when the employer mandates are phased in, many franchise businesses will be motivated to reduce the number of locations and move workers from full-time to part-time status. In addition to putting millions of jobs at risk, the report says that the employer mandate will add more than $6.4 billion in increased costs to franchise businesses, not including the cost of regulatory compliance. The report notes that "this penalty significantly raises the cost of employing workers and further stifles job creation."
The report notes that the franchise industry has offered an entry point to 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 study concludes these workers will be particularly hard-hit with the new penalties on franchise businesses.
"There is an unintended consequence - in the name of expanding health care coverage, that lawmakers are making it harder for workers to get started in the workforce," said the Hudson Institute study's author Diana Furchtgott-Roth, who is also former chief economist for the U.S. Department of Labor. "Clearly, the law will have negative effects on employment at a time when the unemployment rate is hovering above 9 percent."
The report also found that many franchisors and franchisees, who often own groups of establishments, such as restaurants, hotels, retail and service businesses, 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 50 or more full-time workers.
The report is based in part on detailed employment and insurance data from 15 franchise businesses, including six franchisors, eight multi-unit franchisees and one single-unit franchisee from a wide range of industries. The study provides a number of tables showing how the law encourages reducing full-time employees and shifting to part-time and temporary employees to either achieve tax credits or reduce costs or both. The report's tables show how the change in cost per employee increases as the number of full-time employees increases. To illustrate, the report gives an example of a franchise business owner with several locations and 49 employees who decides to hire the 50th employee. This triggers the $2,000 penalty-$2,000 per worker multiplied by 50 employees, minus the exemption of the first 30 workers, which is 20 employees times $2,000, or $40,000 annually.
The report concludes that the law also creates barriers to entrepreneurs who want to use the franchise business model to expand and grow their businesses.
The report focuses on key provisions of the health care law which affect franchise businesses. Beginning in 2014, individuals will be required to sign up for health insurance or pay a $675 annual penalty (to be waived for those with low-incomes). Businesses with 50 or more employees must offer health insurance for their workers, or pay a penalty of $2,000 per year for each employee. Businesses offering health insurance with premiums greater than 9.5 percent of a worker's household income pay a $3,000 penalty per worker.
One part of the study focuses on multi-unit franchisees that own and operate more than half of the nation's franchised establishments. The study shows that if these businesses choose not to offer health insurance when it becomes mandatory in 2014, they could face more than $3.5 billion in penalties. Some sectors, such as the restaurant industry, which has a large number of multi-unit franchisees, will be particularly affected, with penalties approaching $2 billion. The study also reported that many franchisors that operate company-owned locations will also be affected with penalties over $2.9 billion.
A separate study conducted by IFA of its members found that franchisors and franchisees are overwhelmingly negative in their views about the health care law. Four out of five say that the health care law will increase their operating costs, add more government regulations and introduce greater uncertainty in their long-term growth and business planning.
Hudson Institute's report concludes that many franchise businesses will react to the health care law and the mandates by employing fewer full-time workers and hiring more part-time workers in an effort to reduce their costs. Over 500 franchise business leaders will be in Washington, D.C. Sept. 13-14 to meet with their members of Congress about issues impacting the industry, including the health care law. Their message will explain that the law will have "negative effects on employment in America, effects which America simply cannot afford, especially during this still very challenging economic and public policy climate."
To review the report, click here.
About the International Franchise Association
The International Franchise Association is the world's oldest and largest organization representing franchising worldwide. Celebrating 50 years of excellence, education and advocacy, IFA protects, enhances and promotes franchising through government relations, media relations and educational programs. Through its awareness campaign highlighting the theme, Franchising: Building Local Businesses, One Opportunity at a Time, IFA promotes the nearly 18 million jobs and $2.1 trillion of economic activity generated by franchising. IFA members include franchise companies in over 90 different business format categories, individual franchisees and companies that support the industry in marketing, law and business development.
About Hudson Institute
Hudson Institute is a nonpartisan policy research organization dedicated to innovative research and analysis. Founded in 1961, Hudson is celebrating a half century of forging ideas that promote security, prosperity, and freedom.