Buying a Franchise: Clarify Responsibility for Outlet Staff

A franchise package that includes recruitment support can seem easier to run. However, help with finding and training staff does not automatically mean the franchisor takes responsibility for wages, employment disputes or termination costs. Clear responsibilities protect relationships between franchise partners as well as workers. Before buying, establish who the employer is and how their obligations affect your outlet’s costs.

1. Distinguish recruitment support from the employment relationship

The statement “staff are provided by head office” does not sufficiently explain the legal relationship. Head office may simply advertise vacancies and screen applicants. Alternatively, the workers may be head office employees on temporary assignment, or staff supplied by a service provider. Each arrangement requires different checks.

Ask for a written explanation of who signs employment contracts, pays wages, enrols workers in social security schemes, gives instructions and handles staff grievances. Do not rely solely on uniforms, email addresses or the brand name used in recruitment materials.

Use the following questions when meeting a prospective franchisor:

• Which legal entity is named as the employer?
• Who sets wages, working schedules, leave and overtime?
• Who has authority to take disciplinary action or terminate employment?
• If head office assigns staff to the outlet, how long does the assignment last and who bears the costs?
• Who keeps employment records and proof of payment?

The franchise agreement and employment contracts must reflect day-to-day practice. If the documents name you as the employer but head office controls all staffing decisions, ask a legal adviser to assess that division of authority before you agree to it.

2. Separate franchise rules from employment obligations

Indonesia specifically regulates franchising through Government Regulation No. 35 of 2024 on Franchising, which replaced Government Regulation No. 42 of 2007. One requirement is to provide a Franchise Offering Prospectus to the prospective franchisee at least 14 calendar days before the Franchise Agreement is signed.

Use this time to request proposed staffing arrangements, sample employment contracts with personal data removed, and details of recruitment services. Explanations of head office support need to become clearly defined obligations that can be checked, rather than vague promises of “support until you are ready”.

Compliance with franchise rules does not, however, replace employment obligations. Employment relationships are governed, among other legislation, by Law No. 13 of 2003 on Manpower, as amended, including by Law No. 6 of 2023. Government Regulation No. 35 of 2021 covers matters including fixed-term employment contracts, outsourcing, working hours and rest periods, and termination of employment.

This means an agreement stating that “head office is responsible for all staff matters” does not, by itself, remove the legal obligations of the party that is actually the employer. Equally, the end of a franchise agreement does not mean all employment relationships automatically end without further obligations. Seek a legal review appropriate to the employment arrangements you plan to use.

3. Calculate staffing costs, not just monthly wages

Ask for a staffing model based on opening hours, shift patterns, rest days and cover requirements. The headcount in the proposal may not be enough to operate the outlet to the required standards without excessive overtime.

Prepare a budget that separates the following components:

• Wages and allowances in line with the rules applicable where the outlet is located.
• Overtime where necessary and permitted under the applicable rules.
• Religious holiday allowances, known in Indonesia as THR, and the employer’s mandatory social security contributions.
• Recruitment, uniforms, medical checks where required, and training for replacement staff.
• Obligations arising when employment ends, depending on the type of employment relationship and the reason for termination.

If head office charges a staff management fee, ask what it includes. Does it cover only payroll administration, or also finding replacements? Are there additional charges when a worker resigns?

Also test a scenario in which an outlet manager leaves and another worker needs training. Record who pays for training, travel, accommodation and staff cover. Do not treat work by the owner or family members as a free resource without accounting for the limits on their time.

4. Put responsibilities and problem-handling procedures in writing

Create a responsibility matrix agreed by both parties. For each activity—recruitment, payroll, attendance recording, grievance handling and termination of employment—identify who carries it out, who approves it, who pays and what supporting documents are required.

Clarify the limits of head office’s authority too. For example, if a brand audit calls for a worker to be removed from customer-facing duties, who makes the employment decision? An operational request from head office must not automatically be treated as grounds for dismissal without checking the procedures and the worker’s rights.

If staff are assigned by head office, agree on arrangements for replacements, incident reporting and settling invoices. Make sure you receive evidence that relevant obligations have been met without accessing excessive amounts of workers’ personal data.

Practical step: before signing, ask for three things: sample employment documents, a complete staffing budget and an agreed responsibility matrix. Put the decision on hold if questions about who bears employment obligations are still being answered with “we will sort that out after opening”.