A successful franchise depends upon its employees. But who do they depend on for their paychecks? While you’re learning how to start a franchise, pay close attention to who handles your payroll. This guide will walk you through some of the payroll issues you’ll need to consider when hiring for your franchise.
In some cases, the franchisor will pay all company employees, but in most cases, this responsibility rests on the shoulders of the franchisee.
Check the Franchise Agreement
In some cases, franchisees and franchisors are considered joint employers, but this is relatively rare. In most cases, franchisees are considered to be a separate business entity from the franchisor.
The franchise agreement serves to define the relationship between you, the franchisee, and the franchising company. This document doesn’t explain how to start a franchise, per se, but it does clarify what your responsibilities are and what the franchisor provides in return.
Specifically, the franchise agreement will explain who will handle the payroll for your franchise. This can either be the franchisor or the franchisee, though it’s most common for the franchisee to be responsible for their own payroll.
Additionally, your franchisor may have specific guidelines for how to structure your budget. These guidelines mean that you’ll know how much money to allocate for things like equipment, insurance, royalties, etc., and this also means you’ll have a designated portion that you can devote to payroll.
Responsibilities of the Franchisee
Regardless of who actually handles the payroll for your franchise, the franchisee will still be responsible for managing the bulk of the process. This work includes the interview process when hiring for your franchise, as well as recording data that relates directly to employee compensation.
Since most franchise workers are hourly-wage employees, this responsibility primarily means overseeing a time management system so that you can stay on top of how many labor hours your franchise utilizes in a given time period.
Again, your franchisor may have certain benchmarks and limits to guide you, but it’s the franchisee’s responsibility to oversee the process at the local level.
Methods of Payment
Franchisees will also need to facilitate the exact method of payment. Employees can be paid in one of three ways:
- Direct deposits
This variety is why it usually makes more practical sense for franchisees to cover their own payrolls.
Simply put, it’s easier for local franchise operators to make these sorts of financial distributions to their workers. But even if the franchisor handles payroll, franchisees will still need to facilitate the paperwork that ensures the employees get paid.
How Do Franchises Handle Tips?
In certain types of restaurants, employees may receive tips. This setup means that a substantial part of the employee’s salary comes from tips, not directly from the company payroll. A situation like this means that wait staff and others may be paid a lower wage, and their tips will make up the rest.
Some franchises may require employees to participate in a tip pool. In a tip pool, a portion of the tips is collected and distributed across all staff members, with the exception of managerial staff.
The Fair Labor Standards Act (FLSA) specifies that this tip pooling policy can’t result in an employee making less than minimum wage, and some states impose additional regulations regarding how tips are handled.
Hiring and Distribution of Tax Documents
As a franchise owner, you’re also responsible for hiring for your franchise. This means that you’ll be responsible for the onboarding process and ensuring that you have adequate resources to cover employee wages.
It also means that you’ll be directly responsible for collecting and distributing tax documents (e.g., Form W-2) to remain in compliance with all existing tax laws. Even if the franchisor handles the payroll, franchisees may still need to ensure that these documents are appropriately distributed.
How Do Franchise Owners Get Paid?
Franchise owners typically draw a salary directly from their business. In some cases, you can draw from the accumulated equity of the franchise itself, but you’ll want to check with your franchisor (and maybe even a financial advisor) before you do so.
Where Can I Find Franchising Options Near Me?
Learning how to start a franchise isn’t that difficult, so long as you have access to the right resources. That’s why Franchise Opportunities provides additional educational content to help you along your entrepreneurial journey.
If you’re considering a career in franchising, use the free franchise locator tool. Just enter your location to find franchising opportunities in your area. You may find your next big adventure and work your way toward a new way to earn a paycheck.