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Franchise Operations: Payroll Setup Guide (2026)
Setting up franchise payroll means the standard registrations, an EIN, state withholding and unemployment accounts, new hire reporting, plus the franchise specifics: pay codes for joint employer liability and multi-entity payroll and a documented classification for location managers and crew members. BEG runs franchise payroll for $45 per employee per month inside the payroll software you already use, all-inclusive, live in 3 to 5 business days.
Step 1: accounts and registrations
Every franchise starts with an EIN, a withholding account in each state where someone works (unless that state has no wage tax), an unemployment insurance account in each of those states, and access to each state's new hire directory. New employers deposit federal employment taxes monthly during the first calendar year because there is no lookback period yet.
Step 2: classify location managers and crew members before the first check
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.
Step 3: build the franchise pay codes
Joint employer liability, multi-entity payroll, franchisor reporting requirements and high turnover each become a pay code with its own taxability and overtime treatment. Building them before the first run is cheaper than correcting a quarter of 941s afterward.
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.
Step 4: set the records up to be kept
A completed Form I-9 must be kept for every person on payroll for three years after the date of hire or one year after employment ends, whichever is later, and must be produced within three business days of an inspection request. This applies even when an employee leaves shortly after being hired.
Employment tax records, including amounts of tips reported by employees, records of allocated tips, dates of employment for each employee and copies of returns filed, must be kept for at least four years after filing the fourth quarter return for the year.
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]
- 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]
- A completed Form I-9 must be kept for every person on payroll for three years after the date of hire or one year after employment ends, whichever is later, and must be produced within three business days of an inspection request. This applies even when an employee leaves shortly after being hired. [USCIS Handbook for Employers M-274, section 10.0]
- Employment tax records, including amounts of tips reported by employees, records of allocated tips, dates of employment for each employee and copies of returns filed, must be kept for at least four years after filing the fourth quarter return for the year. [IRS Employment tax recordkeeping]
Read the full guide to how to set up payroll for a new business, and the rest of the franchise payroll library.
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Frequently Asked Questions
What registrations does a new franchise need before running payroll?
An EIN, a state withholding account and a state unemployment account in every state with an employee, and new hire reporting access. State registrations are the slow step and can take weeks, so they start before the first hire date.
How are location managers and crew members classified at setup?
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 records must a franchise keep from day one?
A completed Form I-9 must be kept for every person on payroll for three years after the date of hire or one year after employment ends, whichever is later, and must be produced within three business days of an inspection request. This applies even when an employee leaves shortly after being hired.
What does managed payroll cost for a franchise?
$45 per employee per month, all-inclusive, inside the payroll software you already use, with no 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 $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. Department of Labor: Wage and Hour Division
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