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Who pays franchise employees?

Although franchisees operate under the trademark of a parent company, they generally are considered separate business entities from the franchisor. Franchise employees, much like workers in any other type of business or industry, are paid by their employer.

In most cases, this is the franchisee, but in others, it’s the franchisor. So the ultimate question remains who is responsible for the payroll of the franchise employees??

Franchise owners, or franchisees, generally pay their own employees. If the franchisor provides payroll services, it usually will be stated in the franchise disclosure document, also known as the FDD.

In a joint employment arrangement, the franchisee and the franchisor may both be responsible for payroll and both could be held accountable if a compliance violation occurs. Franchisors may also oversee the hiring process, work schedules and employee records.

The franchisor is a joint employer if they

  1. have the power to hire or fire employees

  2. supervise and control work schedules and working conditions

  3. determine payment rates and methods

  4. maintain employment records

In some cases, to maintain uniformity or to take advantage of bulk purchasing, a franchisor may recommend its franchisees pay their employees using a particular payroll software. In other situations, franchise owners may have complete freedom to choose whatever payroll method they see fit.

Franchisors may strongly recommend software (even if they’re not responsible for paying the franchisee team) because they have a long-standing relationship with the provider and can often secure a bulk discount for the franchisee.

Most successful payroll software allows you to:

  1. track time worked: If you select a platform with a built-in time clock, you can easily track your team’s time and attendance to pay them accurately.

  2. be flexible: You may have to pay full-time and part-time employees, different pay rates, or even multiple payment methods, like check or direct deposit.

  3. empower the employees: By choosing a system with employee self-service, your team can clock in and out, request time off, and update their tax info themselves.

  4. run payroll anytime from anywhere: Online platforms enable you to run payroll from any device, so you don’t have to wait until you’re in the office.

  5. manage multiple locations: If you own or plan to own multiple locations, the software must allow you to run payroll for all your stores from a single username.

Outsourcing your payroll may seem like an additional cost, however, it would allow you the time and freedom to concentrate on your business, and in turn, and most likely, in the short and long term, increase your revenue.

So in conclusion, payroll and franchise employees payments will be discussed and agreed upon while signing the franchise agreement.

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