Franchise Payroll: Answering Tough Questions
Franchise Payroll: Answering Tough Questions

Franchise Payroll: Answering Tough Questions

It’s no secret that payroll for franchisees and franchisors can be a hodgepodge of confusion. Who’s responsible for payroll? Often, it’s a toss-up. With so much confusion it’s easy to fall victim to major fines and penalties. That’s why it’s so important to get payroll right.

If you’re one of the lucky few (a franchise with a built-in payroll provider as part of the franchise agreement), great! But if not, you may be left with tedious HR tasks that take your focus away from your customers. Before we dive deeper, let’s identify the players in the game.

“Employer” “Franchisor” and “Franchisee” Who’s Who?

Owning a franchise is similar in many ways to running an independent small business, such as a restaurant or dry cleaners. One of the primary benefits and differences is that you’re buying in to an already-established brand, which means you take on a lot less risk than a start-up. And as a franchisee, you have a built-in customer base. The franchisor manages the overall brand big picture including which products and services are sold, uniform requirements, and site design. And this is where things can potentially get sticky. Depending on *how much* control the franchisor exercises over your employees, they can be deemed a joint employer.

What is a Joint Employer?

The National Labor Relations Board (NLRB) determined that a franchisor is a joint employer if it:

“meaningfully affects matters relating to the employment relationship such as hiring, firing, discipline, supervision and direction.”

This definition also includes payroll. If your franchise allows you to select the type of payroll system you use, then you are considered the employer. If the franchisor controls the systems you’re required to use, then they become a joint employer.

In April, the DOL established a four-point test to determine when a franchisor and a franchisee are considered to be joint employers. Both parties are held equally responsible for any labor violations under FLSA if the franchisor:

  • Has the power to hire or fire employees
  • Supervises and controls the employees’ work schedules or working conditions
  • Determines employees’ pay rates or methods of payment
  • Maintains the employees’ employment records

That’s why it’s so important to define at the outset of your agreement who’ll be responsible for what.

Processing Payroll

If you’re not in a joint employment business relationship, the burden is on you for handling employee pay checks. You’ll need a system to track employee hours worked, attendance, schedules and withholding allowances for federal and state payroll tax filings. Plus, you need to ensure that you’re compliant with regulations such as the Affordable Care Act, which can get complicated when you have multiple locations and a blend of full- and part-time employees. And if your employees can accept tips, you have an additional payroll hurdle to leap over (check out our blog post on payroll processing for restaurants that goes into much more detail).

How Paycor Helps

Paycor helps business leaders recruit, manage, develop, pay, train and retain their employees. Our easy payroll software is exceedingly usable, enabling you to quickly pay employees from wherever you are, all while ensuring tax compliance. You can get in, make edits, run payroll and get out.


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