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Payroll Withholding / Sales Tax / Trust Funds

Monies which you as an employer are required to collect and remit to a government agency are not yours. They are held in trust for the government, and you as the franchisee are a fiduciary.

 If as a franchisee you collect sales tax and employee withholding but use that in your business operation, you may find that when time comes to send the money to the government... you don't have the money. That is very serious.

Smart franchisees will take the sales tax money and put it in a savings account or something similar that is harder to access than a checking account. That resists the temptation to raid the government kitty when you have a bad week and the rent is due.

Major payroll services such as PayChex will not only handle the payroll but will also make the deductions and send the money to the proper agencies. Any franchisee who does not use such a service is taking a grave risk.

One last thought: Be careful about who handles your remittances. If you use an in-house bookkeeper or your nephew who has just set up a payroll service down on Main Street, you take the risk that they may run off to the Bahamas and leave you holding the bag. Personally, I used PayChex and I would recommend that you use one of the major processors (ADP is another) unless you understand the risk of trust funds being embezzled.

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About Paul Steinberg

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Attorney. Former franchisee. Co-author of Beguiling Heresy: Regulating the Franchise Relationship (Penn State Law Review, 2004). Paul primarily represents small business clients and franchisee litigation in the state of New York. Contact the Law Office of Paul Steinberg, NY, NY at 212-529-5400.

Area of Interest
Franchise Operations