Health Club Owners Feel Trepidation over Minimum Wage Hike

A proposed federal minimum wage increase to 1010 per hour could cause some fitness facility operators to rethink business Photo from Thinkstock
<p>A proposed federal minimum wage increase to $10.10 per hour could cause some fitness facility operators to rethink business. <em>Photo from Thinkstock.</em></p>

Thirteen states had an automatic minimum wage hike at the start of 2014, and health club owners—particularly those of small- to medium-sized clubs—are anxious about the proposed federal increase to $10.10 an hour from $7.25, which was passed in 2009. They are concerned that perks such as merit-based raises and employee benefits may suffer.

In a still-recovering economy, some policymakers also have concerns about forcing higher labor costs on low-margin businesses, while others contend that a wage hike for the country's lowest-paid workers is long overdue and will not cause job losses.

In January, the National Employment Law Project, a liberal research and advocacy group, applauded President Barack Obama's executive order as a "powerful first step," while a study released in January from the fiscally conservative Employment Policies Institute claims 1 million entry-level jobs could be eliminated as a result of the increase to a $10.10 base wage.

"This will have a tremendously negative impact on all our clubs," says Don Crowe, CEO of Arena Sports, Redmond, WA.

Crowe has about 400 employees among his two fitness clubs and four indoor soccer centers. Many of his staff make minimum wage, he says—mostly high school students who coach or officiate soccer—but they get bonuses for retention and sales, and they can then earn as much as $25 an hour.

Crowe provides medical, dental, a 401K match, vacation and other benefits to his employees, but he says he likely will cut some of those due to the wage increase.

"It's going to drive up all our costs," he says.

Molly Kemmer, general manager of the Anschutz Health and Wellness Center, a large facility at the University of Colorado-Denver, says the wage increase is about more than hourly pay.

"I am a proponent of a minimum wage increase, as long as it's accompanied by commitment to good hiring, training and staff development practices," she says, adding that organizational development is not solely tied to compensation.

For health club operators worried about cutting back, Kemmer advises that they look at their peak hours and higher usage.

"Lay your staff schedule on top of that so you're staffing effectively and getting the most out of your employees, and maybe cross-train employees to offer additional value," she says.

Local Minimum Wage Increases Already Affect Some

Damon Bader is vice president of operations at Defined Fitness, Albuquerque, NM, one of four U.S. cities where the minimum wage increased locally but not statewide.

"It has a domino effect," Bader says. "Fifty or 75 cents over the course of the year—sometimes we just can't afford that."

Bader has more than 400 employees among his three clubs—one in Albuquerque, Rio Rancho and Farmington, NM. Forty to 50 of those staff members earn minimum wage in positions such as front-desk greeter and child-care personnel. His custodial staff starts at a higher hourly wage because recruiting for those positions is more difficult, he says.

The last wage hike in 2009 affected Defined Fitness to the tune of about $50,000 that year, Bader says.

"It takes away a management position, really," he says. "They tend to start in the $40,000 to $60,000 range. When we extend the amount of money for the minimum wage increase, it takes away resources for the management position because I've already spent that money."

Although the minimum wage increase may not mean layoffs, it may mean that Bader is unlikely to backfill when people quit, he says. He is considering opening a club in Santa Fe, but if New Mexico adopts a statewide minimum wage increase, he may hesitate to do so, he says.

"That's something we've examined really closely in regards to whether we're going to expand there," he says. "We take great pride in not increasing our membership rates. Our competitor, Wellbridge Club, is not experiencing issues that I know of. Membership rates are significantly higher than ours, so they can absorb it."

Crowe also predicts that when clubs cut costs due to minimum wage hikes, automation will replace in-person interaction. People may be booking personal trainers online more often, he says—something that now is handled by front desk staff.

"A lot of naïve people think you can just charge customers more," Crowe says. "You can't. They'll go to a different gym. If price was based on cost, no business would ever go out of business."

Bader and Crowe both expressed the sentiment that the fitness industry feels the pinch when it comes to merit-based bonuses and pay increases.

"In a merit-based system, we can give more bonuses," Bader says. "A minimum wage increase gives everybody the benefit of the doubt now, so to speak. As owners, we want to reinforce the positive activities whenever possible and have as much flexibility as possible."

Crowe says: "I want people to do a better job, but there are incentive pay components that don't qualify in the minimum wage world. It ends up hurting customer service and increasing cost to the business."

SIDEBAR: States That Have Raised Minimum Wage

About 2.5 million American workers currently earn the minimum wage. Twenty-one states have a minimum wage set higher than the federal level of $7.25 per hour. Congress is considering raising the federal minimum wage. California is scheduled to raise its minimum wage from $8 an hour to $9 an hour in July, but 13 other states already raised their minimum wage as of Jan. 1. They are:

  1. Arizona
  2. Colorado
  3. Connecticut
  4. Florida
  5. Missouri
  6. Montana
  7. New Jersey
  8. New York
  9. Ohio
  10. Oregon
  11. Rhode Island
  12. Vermont
  13. Washington

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