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In any other sector, it’s the employer who pays the worker. In franchising, the case is not so clear, as events of recent years have made plain
I work for a franchise. Who does my payroll?
This is a question that comes up time and time again to new prospective franchise owners looking to invest in a new business. When you work for a business that has many moving parts, identifying the right people for the right job can be a challenge. Payroll is run by your employer, so the first question you need to ask yourself is: who actually employs me?
Generally, wherever in the world you work, you are paid by the business that employs you. An employer is anyone who has enough control over the terms and conditions of your employment, whether that’s work environment, terms of service or pay, to be considered under the law to be actively employing you.
In the case of working for a franchise, just because your work assignments and pay come from the local franchise, it doesn’t necessarily mean that the franchisor is not also your employer.
If the franchisee (the place you physically go to work) also acts as your employer, they are usually responsible for your payroll. They will run a payroll system of their own, whether it’s in-house software, manual processing or by using a third party.
If a franchisor maintains control over payroll, they are responsible for ensuring you’re being paid on time. If both the franchisee and the franchisor control your employment, things get a little more complicated. If court decides that a franchisor exercises too much control over the workforce, they may be held liable under any number of laws concerning the employee-employer relationship, along with the franchisee.
In that case, both entities would be considered “joint employers” and the franchisor may be the ones running your payroll and responsible for your wages. It’s very important to have an understanding of the franchisor/franchisee relationship, because it can cause major headaches…
McDonald’s Payroll Defence
In 2014, this well known burger franchise got into hot water with the National Labour Relations Board (NLRB). They argued that McDonald’s Corporation was exercising so much control over its franchisees, it was considered a joint employer.
One of McDonald’s leading arguments was that its franchisees set wages for their employees, as well as controlling local working conditions. The question of payroll was clear and McDonald’s hoped to use that in order to absolve themselves of further responsibility.
However, the workers stated that it’s the corporation that really controls how local restaurants operate. The workers argued that the regimented rules and regulations that McDonald’s demands its franchisees follow end up controlling how employees work.
In March this year, McDonald’s opted to settle out of court and it still hasn’t been resolved at the time of writing. The result has been a four year legal battle that cost millions of dollars.
The lesson is clear: As a franchisor. know the limits of your control!
How to Reduce Your Risk
To minimise the risk, it’s important to have a clear understanding of the employment laws in the state or country your franchises are located in. Global franchisors may find that their level of responsibility will change depending on the local laws.
The question of control is different wherever you go, so having a clear understanding of what’s expected of you will keep you from avoiding a lawsuit. Franchisees should take care to read their franchise agreements very carefully.
7-Eleven’s Crystal-Clear Agreement
In 2017, franchisor 7-Eleven, won a case that was brought to Federal court in California. The court ruled against the complainant franchisees, saying that 7-Eleven is not a joint employer because its franchise agreement is crystal clear on the issue.
Their agreement states that franchisees “exercise complete control over and all responsibility for all labour relations and the conduct of [franchisees’] agents and employees, including the day-to-day operations.”
7-Eleven’s hands-off approach insulated the larger business from any risk exposed by a franchise operating independently.
Managing joint control over franchise payroll
Consistency is very important to any franchise’s brand and business model. A good franchisor wants everyone working in these businesses, no matter where they are, to act, look, and be treated the same. This includes getting paid.
As such, franchise payroll may be overseen by the franchisor, with the franchise itself running the manual data entry. This gives the franchisor the control they need to ensure their franchisees are meeting their compliance obligations, without having to manage the day-to-day operational activity.
In the eyes of the law, the franchisor is responsible, but the franchisee does all the heavy lifting.
This means of delegation is handy for mid-level franchises that have enough employees to make individual data management viable but lack the staff expertise to leave franchises fully independent.
Alternatively, franchisors can walk a tightrope of control by providing options and tools for franchisees to help maintain consistent operations across the business.
More than 80% of US-based restaurant company, Yum! Brands’ stores are owned by franchisees.
With an operation than spans the entire world, they cannot reasonably dictate what every single storeowner does with its payroll and HR.
But, what they can do is “strongly recommend” payroll software and other HR tools that are approved by the business.
Other franchisors rely on a third-party payroll service to manage all the entire payroll function. This is particularly useful for global franchises with complex payroll every month.
This has the additional benefit of giving every employee a single point of contact should issues around payroll arise.
So, if you work for a franchise and need to speak to someone about your pay, you may have to go further afield than you think. It all depends on the structure of the business.
If you’re looking to invest in a franchise, make sure you fully understand what you will be responsible for. That way, you won’t have any sudden surprises!
ABOUT THE AUTHOR
Gary Webb heads up PR, marketing and communications for IRIS FMP, and ensures that all communications help to drive understanding of the solutions available from their experienced payroll team.
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