HR for franchises in India
Reviewed by Mellow Editorial Team, HR & payroll content team
Franchise HR in India follows the same statutory rules as any other employer — but the multi-location, multi-entity structure creates compliance gaps that single-location businesses rarely face. Here is what you need to get right.
Who is the employer of record?
This is the first question every franchise arrangement must answer clearly. In India, the franchisee is typically the legal employer of staff working at the outlet. The franchisor sets brand and operational standards but does not usually carry the employment liability.
That distinction matters for payroll, PF registration, ESI registration, professional tax (where applicable), and gratuity obligations. If the franchise agreement blurs this line — for example, if the franchisor dictates hiring, firing and pay scales without being the registered employer — there is a risk that a labour authority or court treats the arrangement as a principal-employer relationship. That can expose the franchisor to liabilities it did not intend to take on.
Before you sign a franchise agreement, confirm in writing which entity employs each category of worker and ensure that entity holds the relevant registrations.
Statutory compliance at each outlet
Every franchisee operating as an employer must maintain its own compliance stack. This includes:
EPF registration. Once the outlet crosses the statutory headcount threshold, the employer must register under the Employees' Provident Funds and Miscellaneous Provisions Act. The contribution rate is 12% from the employee and 12% from the employer, applied to basic wages.
ESI registration. Outlets where employees earn below the prescribed wage ceiling must register under the Employees' State Insurance Act. Both employer and employee contribute, and the scheme covers medical, sickness and maternity benefits.
TDS and income tax. The franchisee-employer deducts TDS from salaries under the income tax rules. Employees are taxed under slabs rising to 30%, subject to a section 87A rebate at lower income levels and a 4% health and education cess on tax payable. Employers file Form 24Q quarterly and issue Form 16 to employees annually.
Gratuity. Any employee who completes five years of continuous service is entitled to gratuity. Franchise staff are no different. If your outlet has high turnover at the four-year mark, that does not eliminate the liability — and courts look sceptically at terminations timed to avoid gratuity.
Labour Codes. India's four consolidated Labour Codes — covering wages, industrial relations, social security, and occupational safety — are in force from 2025. Each franchisee must map their HR practices to the applicable Code, since many obligations (standing orders, leave, working hours) now sit within this framework.
Where multi-location franchises go wrong
The most common HR failure in franchise networks is inconsistency creating legal exposure. Consider three scenarios:
Pay inconsistency. A franchisor mandates a uniform customer experience but leaves pay to each franchisee. One outlet pays well above minimum wage; another barely meets it. A disgruntled employee at the lower-paying outlet files a complaint. The franchisor's brand is in the press. Having a minimum pay band in the franchise agreement, aligned to the applicable state minimum wage, protects both parties.
Undocumented contract changes. Franchise staff often move between outlets — covering shifts, supporting new openings, being absorbed when an outlet closes. Each move that changes the employing entity needs a formal end and a new contract. Treating it as an internal transfer creates a fictitious employment history, which complicates PF records and gratuity calculations.
Absent standing orders. Larger establishments under the Industrial Relations Code are required to have certified standing orders covering conditions of employment, leave, misconduct and termination. Franchise networks frequently assume the franchisor's standing orders cover all outlets. They do not. Each franchisee above the prescribed headcount threshold must obtain their own certification.
What the franchise agreement should cover
HR governance belongs in the franchise agreement, not just in an operational manual. At a minimum, address:
- Which entity is the employer for each type of worker, including contractual and gig staff
- Minimum compensation bands that keep all outlets above the relevant state minimum wage
- Shared HR policies (anti-harassment, grievance, code of conduct) that franchisees adopt by reference, ensuring brand consistency
- Audit rights allowing the franchisor to inspect HR and payroll records — protecting brand reputation and reducing joint-liability risk
- Obligations on the franchisee to notify the franchisor of any labour dispute, regulatory notice or inspection
Including these clauses is not micromanagement. It is the franchisor protecting the value of its brand, and the franchisee getting clarity on what is expected of them.
Centralising HR administration across outlets
A franchise network of any scale benefits from a shared payroll and HR system even where each franchisee is a separate legal entity. How Mellow runs payroll across six countries illustrates how a single platform can hold separate legal structures while giving a network-level view of headcount, payroll cost and compliance status.
At a practical level, this means Form 24Q filings, EPF challan payments and ESI returns across all outlets can be tracked centrally, anomalies can be caught before they become notices, and the franchisor can demonstrate to new franchisee prospects that the network takes compliance seriously.
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