Who is responsible for payroll in a franchise business?

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Inside Franchise Business: who does payroll in a franchise?Franchisees and prospective franchisees need to be aware of new laws which have been introduced as part of changes to the Fair Work Act 2009.

The Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 has been introduced with a view to combating the systemic exploitation of workers by franchisees and operates to, amongst other things, impose harsher penalties in circumstances where an individual knowingly contravenes the Act.

What are the new laws and what do they mean for franchisees or prospective franchisees?

A number of changes have been introduced under the Act which will have a significant impact on the franchise sector. There are now clear laws which prohibit an employer from requiring that an employee or prospective employee unreasonably spend their money, or return money from their wage to the employer - this takes direct aim at what is commonly known as cashback schemes.

Franchisees need to make sure they meet all pay slip and record-keeping obligations under the Act as businesses which don’t keep the right records, don’t give proper pay slips to employees, or who make false or misleading records and pay slips may be subject to higher penalties under the new laws. In these circumstances and if the franchisee cannot give a reasonable excuse, the Court will apply a reverse onus of proof, meaning that the franchisee will need to prove that they did pay the employee the correct wage or entitlement.

If an employee has suffered loss as a result of a franchisee’s contravention, the employee is entitled to seek a compensation order against the franchisor or holding company. In turn the franchisor or holding company has the right to claim from the franchisee the outstanding wage it has been ordered to pay to the employee.

As suggested above, the new laws also provide that franchisors and holdings companies can be held responsible if their franchisees or subsidiaries don’t following workplace laws in circumstances where they knew or should have known and could have prevented it.

Managing payroll

Various payroll award rates apply depending on your industry.

If you are unsure as to what rates to pay your employee, or which award rates applies to you or your industry, seek professional assistance from an accountant who specialises in payroll and/or a lawyer who specialises in employment law.

At a minimum, you should have the following:

  • Documentation, such as a letter of offer of employment or employment contract with your staff setting out details of their hours of work and pay and the industry award they are being paid under; and
  • Have a system where you accurately record:
  • Their hours of work; and
  • The amount of wage you have paid them.
  • The above are simple but important steps to ensure you comply with the workplace laws.

Improving your payroll process

If you are currently manually dealing with payroll or processing your payroll is consuming a lot of your time, there are many software and service providers who could assist you and streamline the process.

Outsourcing your payroll may seem like an additional cost, however, it would allow you the time and freedom to concentrate on your business, and in turn, and most likely, in the short and long term, increase your revenue.

Authors: Jenny Needham, senior associate, and Hannah Veldre, lawyer, at Piper Alderman

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