As a franchisee, you
are the employer of those working for you--not
your franchisor. Therefore, you are responsible for complying with your state laws governing employers. Since the laws vary by state, you should consult with a CPA and attorney who deal with small businesses in your state. I would not recommend doing your own payroll and I would not recommend using an Internet-based service unless you know what you are doing, or if your franchisor and your local franchisees have had some experience with the vendor---including having gone thru an audit where the vendor did what it was supposed to.
There are national companies with local offices such as Paychex
which will not only handle all the paperwork and remittances for you, but will be there when you have a state tax or state labor department audit. But even though you have someone else taking care of your payroll and tax issues, you should be familiar with the laws in your state and potential landmines you face as an employer. Paychex has an excellent booklet on the topic, and there are some companies that have special expertise dealing with franchisees who may be of help.
Many franchisees have been subjected to penalties for failure to pay overtime, and there have been cases involving failure to have workers compensation coverage, use of trust funds (such as witholdings for FICA and tax), and failure to maintain unemployment insurance.
A less well-known problem can result from being nice to your employees. Many franchisees give free product to their employees. This is particularly common in the food industry. But state tax authorities may find this to be imputed wages
and you can be liable for payment of taxes and the imputed wages may be used to increase the amount on which unemployment benefits are paid. I have seen this in New York, and a recent case
of a Subway sandwich shop in Maine is a reminder to be careful, and that sometimes being a nice employer is not a good idea.