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Run the Payroll Fee Auditor →Blog · Payroll Management · Franchise
Franchise Operations: Payroll Mistakes to Avoid (2026)
The costliest payroll mistakes in franchises are misclassifying location managers and crew members, leaving joint employer liability out of the overtime regular rate, and missing the franchise tax rule cited here. BEG: $25 per employee per month in your existing platform or $45 on isolved, live in 3 to 5 days.
Mistake 1: classification
A location manager is exempt as an executive only if paid on a salary basis at the standard salary level, has management as the primary duty, customarily and regularly directs the work of two or more full-time employees or their equivalent, and has authority to hire or fire or has recommendations given particular weight. Job titles do not determine exemption status.
Mistake 2: hours and the regular rate
The Department of Labor's FLSA joint employer regulation at 29 CFR Part 791 is currently marked Reserved on the eCFR, with the last change dated October 5, 2021 when the 2020 joint employer rule was rescinded. There has been no DOL joint employer regulation in force since then.
On April 23, 2026 the Department of Labor published a proposed rule to restore joint employer regulations to 29 CFR Part 791, with comments due June 22, 2026. The preamble states that neither courts nor the Department have applied the FLSA to extend joint employer status to all general contractors and franchisors.
Mistake 3: the franchise tax item
Food and beverage employers can claim a general business credit on Form 8846 equal to the 7.65% employer share of Social Security and Medicare taxes paid on employee tips, excluding tips used to bring wages up to the $7.25 per hour federal minimum wage. Distributed service charges are wages, not tips, and are excluded from the credit.
What catches them
A pay code review at setup, an exemption file per employee, a regular-rate flag on every pay component, and a deposit calendar that does not depend on one person remembering. Failure-to-deposit penalties run 2 to 15 percent; back overtime runs at time and one half plus an equal amount in liquidated damages.
The rules behind this page, with sources
General information, not legal advice. Every rule below was read on the agency page linked next to it.
- A location manager is exempt as an executive only if paid on a salary basis at the standard salary level, has management as the primary duty, customarily and regularly directs the work of two or more full-time employees or their equivalent, and has authority to hire or fire or has recommendations given particular weight. Job titles do not determine exemption status. [DOL Fact Sheet #17B]
- The Department of Labor's FLSA joint employer regulation at 29 CFR Part 791 is currently marked Reserved on the eCFR, with the last change dated October 5, 2021 when the 2020 joint employer rule was rescinded. There has been no DOL joint employer regulation in force since then. [29 CFR Part 791 (eCFR, as of September 10, 2026)]
- On April 23, 2026 the Department of Labor published a proposed rule to restore joint employer regulations to 29 CFR Part 791, with comments due June 22, 2026. The preamble states that neither courts nor the Department have applied the FLSA to extend joint employer status to all general contractors and franchisors. [DOL WHD proposed rule, Joint Employer Status Under the FLSA, FMLA and MSPA (April 23, 2026)]
- Food and beverage employers can claim a general business credit on Form 8846 equal to the 7.65% employer share of Social Security and Medicare taxes paid on employee tips, excluding tips used to bring wages up to the $7.25 per hour federal minimum wage. Distributed service charges are wages, not tips, and are excluded from the credit. [IRS FICA Tip Credit for employers]
Read the full guide to how to correct a payroll error, and the rest of the franchise payroll library.
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Frequently Asked Questions
What is the most common classification mistake in franchises?
A location manager is exempt as an executive only if paid on a salary basis at the standard salary level, has management as the primary duty, customarily and regularly directs the work of two or more full-time employees or their equivalent, and has authority to hire or fire or has recommendations given particular weight. Job titles do not determine exemption status.
What wage and hour mistakes does DOL see in franchises?
The Department of Labor's FLSA joint employer regulation at 29 CFR Part 791 is currently marked Reserved on the eCFR, with the last change dated October 5, 2021 when the 2020 joint employer rule was rescinded. There has been no DOL joint employer regulation in force since then.
Which franchise tax rule is most often missed?
Food and beverage employers can claim a general business credit on Form 8846 equal to the 7.65% employer share of Social Security and Medicare taxes paid on employee tips, excluding tips used to bring wages up to the $7.25 per hour federal minimum wage. Distributed service charges are wages, not tips, and are excluded from the credit.
What does managed payroll cost for a franchise?
$25 per employee per month inside your existing platform or $45 on BEG's isolved HCM, all-inclusive, with a $500 monthly minimum. Joint employer liability, multi-entity payroll and franchisor reporting requirements are configured at setup, not billed as add-ons.
Related Resources
Anthony leads payroll solutions at Business Executive Group, a national managed payroll firm serving businesses across industries including Franchise Operations. BEG manages payroll at $25-$45 PEPM, all-inclusive, with deep expertise in compliance, multi-state filing, and industry-specific payroll requirements. Get instant pricing at beghr.com.
Authoritative source: U.S. Bureau of Labor Statistics: Occupational Employment and Wage Statistics
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