Demystifying Salon & Spa Wage Systems
I have to post this as promised, I am often confronted with Salon and Spa owners who argue wage laws with me and think they are doing it right because thats the way everyone is doing it. Some of you know me and the expertise I bring to the table as a multi salon owner, consultant and coach and some of you dont know me. One thing most of you dont know is that I was also the President of a Labor Union for over 20 years so my knowledge of Labor Law is very broad.
I often see and hear about owners Paying their employees illegally and unethically. Some owners know the law but choose to ignore it hoping they wont get caught and some owners are just oblivious to the law regarding payment of wages. Often times I just start yelling wrong!!! As I troll the groups. The thing that really gets me pissed is that owners are complaining about employees going independent. I have news for you all. These owners are driving those employees to booth rental by screwing them over and not paying properly. I also hear owners complain about the Bigger franchise salons saying they are corporate chop shops. Did you ever wonder why they are able to find employees? It is because they usually follow the law when it comes to pay.
I have compiled a list of tips below all have which have been vetted and most of which are the law regarding employee pay. Dont be foolish and think you will not get caught because all it takes is one employee making a call to the labor board and you will be regretting it forever even if your business survives after the fines and back wages.
There is the Federal Law which must be met in addition to any State laws. The Federal Law is the Fair Labor Standards Act or FLSA.
The Basic thing you need to know as a salon or spa owner is that you must pay at least minimum wage for all hours worked and yes that means for the hours you require the employee to be there waiting for clients. Here is a link to the FLSA. So I hear you saying I pay commission. Paying commission is fine as long as the commission is equal or greater than the amount the employee would have received at minimum wage. The FLSA also requires that you pay Overtime for hours worked in excess of 40 hours. In Plain language if you have not been documenting that you are paying at least the federal minimum than you better start as in yesterday. You are responsible to make up the difference and if you do get caught you are subject to fines, penalties, back wages and in some cases jail time.
The Second subject I want to talk about is owners that classify workers as Independent Contractors. I recently received a help request from a multi salon owner who was using this payment method and got caught. Here is what he said Help I am being fined by the Department of Labor for classifying the workers at my five salons as independent contractors. He went on to say how he was doing what his lawyer and accountant said he could do but the DOL didnt care. I told him to be prepared to pay as he was fighting a losing battle. The IRS and many states use a multi prong test to determine what an independent contractor is and basically none of us owners meet the criteria to have independent contractors. Two of the most important qualifiers are almost always not met and they are; Does the salon owner exercise control over the individual? IE setting payment amounts, controlling hours, collecting monies, etc. etc. The second is whether the services are normally performed in the course of that business. An example for this would be hair services in a hair salon. To be an independent it would have to be something like a makeup artist called in to do a bridal party. Provided makeup services are not a menu item now.
The next way some owners try to escape paying wage s is with Booth Rental.
When renting a booth, the business owner rents space in their building the same way a commercial landlord leases to the salon or spa. It is basically an independent business within a business. The problem comes when an owner sets prices, hours or collects monies. The Booth renter must be truly its own business to qualify. The booth renter may come and go as they please [within the operating hours of the business], set their own prices, book their own clients, do their own advertising and collect their own fees for services rendered. A booth renter must pay their own taxes and give the owner a 1099 at the end of the year for all rents paid over $600. So the catch here is to make sure you have no control over the renter or they will be classified as an employee.
Next lets discuss payroll deductions.
Back-bar Charges/ Deductions. Under the FLSA it is illegal to deduct from wages if it will put the amount below minimum wage. Deductions other than for taxes or court ordered are illegal in most states and just a way to get in trouble in the others. Here is an excerpt from NJ Law No employer may withhold or divert any portion of any portion of an employees wages unless for taxes, union dues, insurance payments, loans or court orders. Product is something you use in the course of business and you probably already write it off, so get over it. The main reason employers try to get away with this is because they were paying wrong in the first place. Wage deductions out of an employees pay can in some states actually be wage theft and you dont even want to go there.
Redos this is the second thing you cant charge an employee for and it is for the exact reasons stated above. Your job is to monitor redos and correct / mentor the employee until they are rare but you dont have a right to charge the employee for the redo.
Withholding pay as a punishment.
You cant charge an employee for and it is for the exact reasons stated above. An example of this would be deducting money out of the employees final check for theft. Believe it or not this is illegal and the DOL will fine you, make you pay the wages and then tell you should pursue it in a lawsuit or with the police.
Next is, just kidding I Think you get the hint but then again Maybe you dont.
Lets examine the typical owners that will get in trouble at some point.
Owner number One; this owner pays 50 percent commission with a back-bar charge and the employee only gets paid when they perform services while being required to sit and wait for customers. Wrong!
Owner number Two; this owner classifies the workers as independent contractors because he or she thinks this is ok by giving his workers a 1099 and the employee only gets paid when they perform services while being required to sit and wait for customers. Wrong!
Owner number Three; this owner classifies the workers as booth renters but collects payments and sets hours for the booth renter. Wrong!
***In all the above cases the worker is an employee and must be paid at least minimum wage for all hours worked.
Now Lets examine the owner who gets it right.
Owner number One; this owner pays 35 percent commission then at the end of the week calculates minimum wage for all hours worked [employee was at the Salon] and then pays whichever is greater. Right!
Owner number Two; this owner pays an hourly rate more than minimum wage and then pays commission on work after the hourly rate is doubled. Right!
Owner number Three; this owner classifies the workers as booth renters collects rent payments and is not involved in the operation of the booth renters business. Right!
In closing I would like to add my point of view on this subject. We as an industry need to properly educate ourselves. It is time we pay attention to the business side of beauty. Ignorance is no excuse and proper planning prevents poor performance. We need to pay people for their work. Slavery ended a long time ago and if you are an owner taking advantage of your workers you should get everything you deserve. Karma sometimes comes in the form of the DOL. Learn how you as an owner can afford hourly wages by careful planning and if you are sincere and care about your employees but are lost when it comes to figuring this out Then contact me and I will help you do the right thing.
As Always,
Derek Hull
SalonOps
FB Group Salon Owners Mastermind
WWW.salonops.com