HR for franchises in the United Kingdom
Reviewed by Mellow Editorial Team, HR & payroll content team
Franchise HR in the UK sits at an unusual intersection: the franchisor sets the brand standards, but the franchisee is almost always the legal employer. That distinction shapes every HR decision a franchise network makes.
Who is the employer — and why it matters
In most UK franchise arrangements, each franchisee employs their own staff directly. The franchisee signs the employment contracts, runs payroll, handles disciplinaries and dismissals, and carries the legal risk. The franchisor is generally not a co-employer, even if it dictates uniforms, training standards or shift patterns.
This matters because employment law attaches rights and obligations to the legal employer. If a franchisee underpays staff, fails to auto-enrol them in a pension, or dismisses someone unfairly, HMRC or an employment tribunal will look to that franchisee — not the franchisor brand. Franchise agreements should spell this out explicitly to avoid any ambiguity if a dispute arises.
One area of increasing complexity is worker status. Some franchise models use self-employed contractors rather than employees. Since the Supreme Court's Uber ruling and the Employment Rights Act 2025, worker status is assessed on the reality of the relationship, not just what a contract says. Franchisors and franchisees who rely on contractor arrangements should review them carefully — misclassification can result in claims for holiday pay, National Insurance and pension contributions going back years.
Payroll basics every franchisee must get right
Each franchisee operating as a separate legal entity needs their own PAYE reference from HMRC. Payroll must report to HMRC in real time: a Full Payment Submission (FPS) must be sent on or before every payday. This applies whether you pay weekly, fortnightly or monthly.
Key figures for the 2026/27 tax year that franchise employers need to know:
- Income tax: employees pay 20% on earnings above the £12,570 personal allowance, 40% above the higher-rate threshold, and 45% on income above the additional-rate threshold.
- National Insurance: employees contribute 8% on earnings within the main band (2% above the upper earnings limit); employers pay 13.8% on earnings above the secondary threshold.
- Pension auto-enrolment: eligible workers must be enrolled in a qualifying scheme. The minimum employer contribution is 3% of qualifying earnings; employees contribute at least 5%.
Year-end obligations include issuing a P60 to every employee still on the books by 31 May and submitting P11Ds for any taxable benefits in kind by 6 July.
Franchise networks often underestimate how much admin this generates across dozens of sites. A franchisee running a single location with eight part-time staff still has the same reporting obligations as a larger employer.
Statutory entitlements you cannot contract out of
Regardless of what a franchise agreement says about operational standards, employees have statutory rights that cannot be reduced by contract. The main ones to have in place:
Annual leave: full-time employees are entitled to 5.6 weeks' leave per year — 28 days including bank holidays for a standard five-day week. Part-time employees receive a pro-rata equivalent.
Sick pay and family leave: Statutory Sick Pay applies once an employee meets the earnings threshold. Statutory maternity, paternity, adoption and shared parental leave rights also apply from day one of employment for certain entitlements.
Day-one rights: the Employment Rights Act 2025 has significantly strengthened day-one rights. Unfair dismissal protection, in particular, is no longer subject to a qualifying period in the same way it was previously. Franchisees need written procedures for disciplinary and grievance matters from the moment they take on staff — not just after a probationary period.
Where franchisor and franchisee responsibilities overlap
Even though the franchisee is the employer, franchisors inevitably influence working conditions. Mandatory training programmes, scheduling software, customer service standards and dress codes all affect the employment relationship indirectly. This creates a grey area if things go wrong.
Practically, franchisors should:
- Make clear in the franchise agreement that employment responsibilities rest with the franchisee
- Provide template employment contracts and policies that comply with UK law, but make clear these are starting points, not legal advice
- Build HR compliance checks into franchise renewals and audits — asking for evidence of current employment contracts, pension enrolment records and payroll compliance is reasonable
- Avoid directing individual employees directly, which could blur the employer relationship
Franchisees, for their part, should not assume that because the franchisor provided a contract template it is legally up to date. Employment law changes regularly, and a template written three years ago may not reflect current obligations under the Employment Rights Act 2025.
Managing consistency across multiple locations
Multi-unit franchisees — those operating several sites — face the same consistency challenge as any multi-site employer. Disciplinary processes, pay rates, and working pattern policies should be applied consistently across locations to reduce the risk of discrimination claims and to make HR management scalable.
Using a single payroll provider across all sites, maintaining a centralised employee handbook, and training site managers in basic employment law fundamentals all reduce exposure. Where Mellow runs payroll across six countries, the same principle applies at a domestic level: standardisation reduces error and saves time.
The employment tribunal system does not treat "we are a franchise" as a mitigating factor. Each franchisee is judged on whether they met their legal obligations as an employer — and ignorance of those obligations is not a defence.
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