As we enter a new year following what has been a year of transition, challenge and change our franchise team are looking ahead to give some pointers for those in the sector on what’s to come in 2025 and how to prepare for it.
Use alternative structures to circumvent the budget backlash
The Autumn 2024 budget highlighted to the sector that the tax burden for businesses is going to significantly increase this year and this is likely to impact the resource decisions taken by franchise businesses and in particular heralds a focus on improving efficiencies. We highlight below considerations to have in mind when looking at steps to address this whether reallocating resources and/or outsourcing or looking to technology to address these concerns.
Whilst the Trading Schemes Act 1996 and its associated regulations (“TSA”) are far from new legislation it is a key consideration for franchisors that are looking at operational efficiencies and might be considering contracting out functions of the business. Likewise, the businesses in your networks may also be considering reducing headcount by appointing contractors for certain functions of the business. To avoid the onerous regulatory regimes of the TSA it is vital that franchise systems fit within one of its exemptions and where networks do not qualify and/or are exempt from VAT complexities arise when systems seek to rely on the remaining exemption of having no more than 2 tiers. Failing to fall within the exemptions to the TSA technically has dire consequences for franchisors as it brings it within the regime of the TSA which includes such rights as franchisees having the right to cancel or change their mind after having entered into franchise agreements. To avoid this and other sanctions brands should consider solutions to this problem such as alternative business types eg Limited Liability Partnerships which may not only provide the solution to the 2 tier dilemma but also result in potential tax savings where businesses operate in the tuition sector. Note also our comments below regarding the use of contractors.
Know what you are doing when using AI tools for recruitment
The Information Commissioner’s Office (ICO) recently issued a series of key points for organisations considering using AI to assist in recruitment, intended to better protect job seekers’ information rights.
AI-based products offer candidate sourcing, screening and selection tools and can even predict a candidate’s personality type. These solutions promise to increase efficiency by assessing information and making predictions, but the privacy impact must be assessed to ensure safe deployment. Businesses involved in the development, provision or use of AI-based recruitment tools should take heed of the ICO’s recommendations, which cover matters including but not limited to fairness (including monitoring accuracy and bias issues) and transparency and explainability (i.e. informing candidates how their data is used).
Any organisation procuring an AI-based product must not rely on generalised claims given by the provider that the tool is ‘GDPR compliant’, and must conduct its own risk assessment and identify its own lawful basis for use of the AI product to process potential staff personal data. In order to police how a franchise network uses AI for recruitment of staff for its franchise business, Franchisor’s would be better placed to have an AI policy in place setting out approved AI platforms and rules on how these products may and may not be used, in order to protect the reputation of the brand for the network as a whole.
Get your ducks in a row when it comes to employees and contractors
The Employment Rights Bill represents one of the biggest changes in direction to employment law we have seen in a generation. The Bill addresses the Labour Government’s pledge to rework the UK’s employment law framework in line with their stated aim of ending “one-sided flexibility” in employment arrangements, which the Government perceives operates only in favour of employers at present.
Whilst much of the detail is still therefore unknown, businesses now have a clear picture of the areas that the Government is seeking to address which include a) a day-one right to i) unfair dismissal claims, ii) unpaid parental, bereavement and paternity leave, and iii) statutory sick pay, b) the right for an employee on a low/zero-hours contract to be offered a guaranteed number of hours to reflect those worked over a ‘reference period’, c) enhanced maternity protection amongst other changes.
Aside from monitoring these expected changes, there may be steps you wish to take now. It may be a good time for Franchisors with employees and Franchisees to consider employee change or harmonisation processes. Equally, some will use the time before the Bill is implemented to build flexibility into their employment contracts and to audit how they use flexible labour (which is likely to become more challenging in the future).
We anticipate that some employers may also be tempted to lower payroll costs by moving workers ‘off payroll; hiring more “consultants” or transitioning workers to self-employed status in future. Great care will be needed in attempting any work-around of this sort, however, to avoid incorrectly classifying workers and ultimately generating a much greater tax liability (including fines and interest on back-taxes).
Paying heed to these strategies and considerations will help manage the shift in business operationally necessary to thrive in your franchise business in 2025. For guidance on implementing these changes our dedicated team will provide expert advice backed by sector knowledge, experience, and national capability to help you on your franchise journey. To speak with our team and find out more about we might help you visit our franchising webpage and contact [email protected].
