Do Franchise Locations Manage Their Own Payroll?

female coffee-shop franchisee talking on the phone while exploring payroll options

Buying a franchise allows you to own a business without having to start from scratch. Instead, as the franchisee, you can rely on the franchisor’s experience, name recognition, and advertising. You’ll still be responsible for many of the day-to-day operations, which may include managing payroll. Keep reading to learn whether you’ll be responsible for paying your team.

What does your franchise agreement say?

A franchisor is only required to provide support and services outlined in your franchise agreement. If the contract does not explicitly state that the franchisor will handle payroll, the burden will likely fall on your shoulders.

Is the franchisor a joint employer?

If the franchisor is a joint employer, then you will both be responsible for payroll. According to the National Labor Relations Board (NLRB), a franchisor is a joint employer if it “meaningfully affects matters relating to the employment relationship,” and if the employee’s work also benefits the franchisor.

Per the Department of Labor (DOL), 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

If the franchisor is a joint employer, you might physically run payroll. But, you’ll both be held responsible for Fair Labor Standards Act (FLSA) violations, including not paying someone on time or paying workers below minimum wage.

One of the tell-tale signs that a franchisor is a joint employer is that they require you to use a specific payroll platform. They may choose your software to monitor your payroll and ensure you’re not violating any labor laws. 

Choosing a payroll system for your franchise

Your franchisor may strongly recommend software – even if they’re not responsible for paying your team – because they have a long-standing relationship with the provider and can often secure a bulk discount for you. If you handle payroll, though, evaluate all your options before choosing a system.

download how to choose the perfect payroll system whitepaper

Look for payroll software that 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 your 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, look for software that allows you to run payroll for all your stores from a single username.

Read also: Why Use Workful to Manage Payroll for Your Small Business

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