Buying a Franchise in India: Check Who Is Responsible for Staff

The franchise brand may be familiar, but who will employ the people working in the outlet is a separate question. Help with recruitment does not mean the brand will take responsibility for wages, social security contributions or employee disputes. Before starting a franchise business, it is essential to understand your responsibilities towards staff, as these affect both your initial budget and day-to-day operations.

1. Establish who the actual employer is

In India, the franchisor and franchisee are generally independent business parties. Under a typical arrangement, the franchisee is responsible for the outlet’s employees. However, do not rely solely on the labels used in the agreement: the actual arrangements for hiring, payment, supervision and day-to-day working may also matter in a legal assessment.

Ask the brand for a written breakdown of responsibilities. For each category of employee, clarify:

• Who will issue the appointment letter, and which entity will be named in it?
• Who will pay wages, incentives and expense reimbursements?
• Who will set leave arrangements, working hours and shifts?
• Who will have the authority to take disciplinary action and terminate employment?
• Who will receive employee complaints?

Pay particular attention to arrangements where the brand selects the manager but you pay their salary. Ask whether the manager will follow your instructions or report directly to the brand. If the brand can require an employee to be removed from the outlet, responsibility for any alternative role, notice and payments due must also be clear.

2. Distinguish brand support from your legal responsibilities

India has no dedicated national franchise law, mandatory franchise-specific pre-sale disclosure regime or franchise registration scheme. The main general legal basis for agreements between the parties is the Indian Contract Act, 1872. However, compliance with applicable labour and employment laws is not determined solely by the franchise agreement.

Depending on the location, type of establishment, number of employees and other relevant conditions, obligations may arise under state shops and establishments laws, wage and working-hours rules, social security requirements, maternity benefit provisions and workplace sexual harassment protections. Ask a local specialist to confirm which laws apply and their current status and commencement dates.

The brand’s operations manual is no substitute for legal compliance. For example, even if the brand instructs you to keep the outlet open for extended hours, staff shifts and overtime must still be managed in accordance with the applicable rules.

Allocating responsibilities in the agreement does not override the statutory rights of employees or the powers of the authorities. Make sure you understand what support the brand will provide and which registers, payments, procedures and complaints arrangements you must manage yourself.

3. Calculate the full cost of staffing

Do not treat the monthly wage figure quoted by the brand as your total staffing cost. Draw up a shift plan based on the proposed outlet’s opening days and hours. Allow enough staff to cover weekly rest days, leave, absences and busy periods.

Where applicable, include separate budget lines for:

• Recruitment agency fees and the cost of finding staff.
• Wages, incentives, overtime pay and statutory contributions.
• Agreed benefits such as uniforms, meals, travel or accommodation.
• Temporary cover for employees on leave.
• Final payments to departing employees and the recruitment of replacements.

If the brand requires a minimum staffing level or a manager with particular qualifications, get this in writing. Can you change shifts or roles if sales are lower than expected? Will you need the brand’s permission? Establish in advance how much discretion you have to adjust staffing costs.

Speak to an existing franchisee about the main staffing costs and recruitment challenges. Rather than requesting personal employee information, ask about aggregate costs and practical operating experience.

4. Check the terms for shared staff and external agencies

Sometimes the brand sends its own manager during the opening period or supplies staff through an agency. Do not assume this support is free. Agree in writing on its duration, service fees, travel and accommodation costs, and the payment approval process. Also ask who will take over the responsibilities when the support ends.

For an external agency, an invoice alone is not enough. Where applicable, establish a process for obtaining evidence of wage payments and statutory compliance. Using an agency does not automatically remove all your responsibilities; depending on the arrangement, you may have obligations of your own.

Before signing, ask a lawyer and an accountant to review the franchise agreement, sample appointment letters, agency agreement and shift plan together. In particular, check for ambiguity where the party directing an employee’s work is different from the party bearing the cost.

Practical takeaway: Before buying a franchise, set out on one page who will hire staff, who will give instructions, who will pay them and who will handle compliance. If any answer is unclear, resolve it before finalising your staffing budget or the agreement.