When Does a Franchisor Have to Pay Unemployment Insurance?

A franchisor could be required to pay unemployment insurance in certain situations. When does the Employment Security Department (ESD) consider a franchisee an employee or a subcontractor? A variety of factors are used, but three important ones are:

  1. Who controls customer contact,
  2. Who controls the hours of service, and
  3. Who receives the money and sets the rate of pay.

A franchisor is likely not an employer when a company sells a franchise to a corporation, which opens its own business with its own employees. The franchisor does not receive payments from customers and does not pay wages to the franchisee’s employees.

A franchisor is likely an employer when customers pay the franchisor and the franchisor pays the franchisee. For example, a company sells window washing franchises to franchisees. The customers pay the franchisor who pays the franchisee (the franchisees usually have no employees). In the eyes of the ESD, the franchisor would be the employer and the franchisee would be the employee. The ESD would require the franchisor in this instance to pay unemployment insurance.