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How can franchisors understand the employment risks involved in a franchise

Written by Gemma Tumelty on Monday, 13 May 2019. Posted in Analysis

It’s easy to get confused between the status of employed, worker and self-employed when franchisors are dealing with their staff or franchisees. But it’s important to know the difference

How can franchisors understand the employment risks involved in a franchise

There are many different franchise models with a matching diverse array of frameworks for engaging staff. How a franchisee engages people to work will depend on the business and its individual requirements. Many will be conventional in their needs and how they take on full or part-time staff, with consultants or external companies when needed. 

However, in the franchise sector – especially in service-based industries such as cleaning, hospitality, leisure and care – it’s common to require greater workforce flexibility. As a result, franchise staff are often engaged as workers or under self-employed contracts.

As working habits and society in general continue to change and flexible working and the gig economy become more prominent, employment pitfalls grow in proportion. Franchisees must ensure their employment risks – and there are many – are minimised.

These considerations don’t only affect franchisees. Franchisors should be under no illusion of the impact mistakes by franchisees can have on the business as a whole. So, what are the three categories currently? 

Firstly, and most conventionally, is the employed status. They have full employment rights from fixed hours of work and wages to holiday pay, sick leave entitlement, notice period, disciplinary processes and parental leave among others. 

The self-employed have none of these rights apart from health and safety protection with no national insurance contribution from the contracting company. 

Finally, workers have some employment rights but not all – it isn’t an ideal situation and The HR Dept has long been campaigning for simplification. We’ve submitted recommendations to the government that worker status be abolished in favour of improved rights and a revision of self-employment status.

Getting these employment statuses wrong, intentionally or otherwise, can mean claims and backdated financial settlements to the great detriment of franchisees and franchisors.

Think Uber, Deliveroo and Pimlico Plumbers for the most high-profile cases of the employment status battle that’s raging through the courts and impacting resources and reputations. Franchises could be particularly vulnerable to people, originally engaged on a self-employed basis, claiming they are in fact workers and therefore entitled to holiday pay and other employment rights. 

For franchisors, what happens in an individual franchise can mean significant reputation damage across the network and for the national brand as well as necessary changes to your model due to higher operational costs.

Nor are the risks solely around employment statuses. Correct payment of staff, as well as discrimination, are also issues to consider. Witness the 7-Eleven franchisees in Australia who were found to be systematically underpaying their staff, largely due to an unworkable franchise system and lack of support. The damage to the 7-Eleven brand and, by association, the whole of the franchise industry has been massive, with ongoing ramifications. The problems in Australia aren’t something we want to fall foul of in the UK, so it’s time to get our franchising industry in order. 

New legislation is on the horizon with regards to employment status or good work. As a result of a review into the gig economy in 2018 – we hope and expect this will clarify the current system. As HR experts, our recommendations to franchisors are that you should, first off, undertake an audit to see how your services are delivered and what types of employment are used in your central office and your franchised units. 

However you and your franchisees are working, it’s crucial your contracts are a true reflection of the situation and not a sham. Flexibility with zero hour contracts is fine, for example. Pretending staff are self-employed to save tax and National Insurance contributions is not – it’s morally wrong and places great risk on your business. 

The second step should be to review what the financial impact would be of any recommended employment status changes within your franchise model.

Finally, provide good HR guidelines and resources to franchisees to minimise risk and stop them getting it wrong. This should include, as a minimum, guidance and training on correct pay rates and discrimination legislation. Franchisors should also seek to protect their own liability by ensuring the requirements of employing people correctly are detailed in the franchise agreement.

About the Author

Gemma Tumelty

Gemma Tumelty

Tumelty is the managing director of The HR Dept franchise which helps HR people run their own businesses. She is passionate about animals, feminism and politics.

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