Who sets employees’ salaries in a franchise?

John Pratt writes:

The important point to remember, in relation to franchising, is that the franchisee’s business is theirs - it is not the franchisor’s. Franchisees generally make all business decisions, subject to any restrictions that may be found in the franchise agreement or manual.

Franchisors provide franchisees with the system they need to follow, because franchisors will have (or should have) developed a system they can prove will lead to a successful business.

Having said that, not all elements of operating a business will form part of the system and be set out in either the franchise agreement or manual. If it’s neither in the manual nor the franchise agreement, franchisees have to make their own decisions, which would almost certainly be the case in relation to their own employees’ salaries.

However, franchisors may provide guidance and assistance to franchisees as to the correct level of salaries in order to ensure franchisees do not either under or over pay. Where franchisors provide assistance, it’s not necessary for franchisees to comply with it, although they may be foolish if they fail to do so.

John Pratt is senior partner at specialist franchise firm Hamilton Pratt and has advised franchisors for over 25 years.