Payroll Services for Franchises

The cost of opening and running a franchise varies depending on the industry – retail, food service, etc. However, most franchisees can expect to pay:

• Attorneys for reviewing franchise disclosure and agreement documents
• Accountants for bookkeeping and working capital estimates
• Franchise fees, which may cover licensing, training and site selection
• Build-out costs, including construction, furniture, zoning and signage
• Supplies needed to conduct business, such as paper, utensils or tools
• Inventory (if selling products)
• Travel and living expenses associated with training

Small business owners are required to pay their employees and franchisees are no exception. In addition to running payroll, franchisees are generally responsible for hiring workers, filing taxes and complying with all applicable wage and hour laws. If, however, the franchisor exerts control over the employment of the franchisee’s employees, then a joint employment arrangement may exist. In such cases, the franchisor may be responsible for payments that would normally be handled by the franchisee.

The rules, regulations and responsibilities associated with joint employment can be complicated, so it’s best to consult employment attorneys to see how this arrangement might impact business operations. Franchisees who value their time and need assistance managing payroll or compliance can turn to a payroll service provider, like ADP.

Franchisors are required to provide only the services outlined in the franchise agreement. These contracts may include the following provisions:

• Initial training and operating manuals
• Location selection
• Marketing and advertising
• Field support consultants
• Financial assistance programs

Franchisors sometimes have uniform requirements or will offer best practice guidelines, but unless a joint employment arrangement exists, they generally don’t provide HR services. This gives franchisees the freedom to run their business as they see fit, but it also means greater responsibility since they must recruit employees, manage payroll and maintain compliance on their own. In such situations, franchisees can seek help from payroll providers, such as ADP, that specialize in navigating the complexities of HR.

A franchisor can sometimes be held liable for the actions of a franchisee if it has authority over the way the franchisee conducts its business. Many jurisdictions apply the day-to-day-operations test to determine the extent of franchisor control. Any efforts to maintain trademarks or ensure product uniformity, however, are generally excluded from this test.

Some entrepreneurs purchase a franchise thinking their success is guaranteed. Sadly, this is not always true, but compared to start-up companies, franchisees have some distinct advantages, such as:

• The brand may already be recognizable to a large audience
• Collective purchasing allows supplies to be obtained at cheaper costs
• Franchisors typically provide training, meaning prior experience often isn’t necessary
• Well-established products or services may make it easier to obtain financing from lenders
• Support is sometimes available from other franchises in the network