A lot of new salon owners have no clue what the best compensation model is. They want to be fair to their staff, they don’t want to get audited or sued for not paying the right amount, and of course, they want to profit. If you’re confused about which compensation model is the best for your salon, keep reading.

How Involved Do You Want to Be?

The first factor to consider is your desired level of involvement.

“I want to manage and direct my salon!” If you’re interested in actively managing your staff and want to have the most control over your business, you need employees.

“I don’t want to manage anyone.” If you would rather collect a steady stream of revenue, booth renters are the way to go.

Booth Renters

Pros: Booth renters pay a set amount each month. They manage their own businesses, provide their own tools and products, and process their own transactions. They also carry their own professional liability insurance. You are not responsible for their employment tax and they are not on your payroll. They set their own hours and do their own thing.

Cons: You generally have no control over booth renters. They’re self-employed, so you typically cannot tell them what to wear or how to behave. You can’t tell them what to charge, what services to offer, or set work schedules for them. You cannot force them to go through any training or continuing education that isn’t required by state regulations to maintain their licenses. They are simply business owners that rent a station as opposed to a building of their own. Your only job is to collect their rent. Additionally, if there is a client complaint, you cannot rectify it because it is not your responsibility to reimburse on behalf of another business owner. Since clients tend not to understand the business model, they don’t differentiate the renter from the establishment, so they tend to trash talk the business as opposed to the responsible party.

To learn if booth renters are right for your salon, click here.

Should you decide that the booth rental model is right up your alley, I’ve created a downloadable just for you. The Salon Landlord’s Toolkit has a ton of resources for salon landlords, including a spreadsheet that sets your base rental prices for you!

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My Opinion: Having multiple business owners operating in direct competition under the same roof is a bad idea (unless you have a group of professionals who share a similar work ethic, which is almost impossible to find). Rental is great for business owners looking for mostly stable income with little responsibility, but a salon full of troublesome renters can be more problematic than it’s worth.

Employees

Pros: You have complete control over scheduling, services offered, quality of work, pricing, policies, dress code, and products. You can assign employees chores and make attendance at meetings and continuing education classes mandatory.

Cons: You are responsible for providing product and paying employment taxes. Employees require supervision and training, so if you’re not interested in managing them, either hire someone who is or go with the booth rental model. You are also responsible (partially) for ensuring that they’re making money and staying productive.

My Opinion: Employees are the way to go if you have a desire to actually run a business and manage that business’ reputation. A team-based environment is best for ensuring longevity and employee satisfaction.


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Independent Contractors

Too many people don’t understand the true definition of “independent contractor.” An independent contractor is much like the plumber that you call to fix your sink or the handyman you call to repair your gutters. They are “contracted” to complete jobs on a per-job basis. They are self-employed. They are not exclusive to any one customer or salon. They have the freedom to set their own hours.

In the salon environment, you would hire independent contractors to work a special event, performing services that your salon doesn’t typically offer.

For a detailed breakdown of exactly WHY an independent contractor seldom belongs in a salon and the consequences for misclassifying your employees as independent contractors, click here.

Pros: Because work is performed on a per-job basis, there is no obligation to provide continuing employment. Independent contractors are great for those rare, specialized services like permanent makeup or eyelash extensions. This allows you to offer those services for a special event (like a Mother’s Day Spa Party) without having to staff those areas year-round.

Cons: You have very little control over contractors. You set the prices, but they perform the services their own way with their own products. Because everyone is different, you can’t guarantee the same quality of service from one provider to the next.

Independent contractors are gypsies. They go where the money is. The contractor is not and will never be exclusive to you.

Imagine you find an amazing permanent makeup artist and find that she is drawing a lot of business to your salon during your events. She starts contracting at another business down the street. The competing business offers her services at lower prices. If you want that PMU artist to be yours and yours alone, you’ll have to hire her as an employee (if she’ll accept).

My Opinion: Independent contractors do have their place in the salon when used properly. I have often used specialists as contractors for rarely utilized services (like permanent makeup). However, too many employers do NOT use this system correctly.

If you are going to call your staff independent contractors but expect them to work your schedule, pledge loyalty to your salon, and bend to your will like employees, you deserve to get audited into bankruptcy.

Compensation Options

Now that we’ve reviewed the three different types of employees, we can go over the compensation models for each.

Renters: They pay rent. There is no need to compensate them for anything and you provide them with nothing. They run their own business under your roof without interference and–as long as their rent is paid up–you mind your business.

They pay you a flat fee every week or month. I will take this time to state that taking a percentage of their earnings as rent is NOT ACCEPTABLE. Percentage-based rental agreements are legally perilous at best. (In five out of six revenue rulings, the IRS determined salon owners who took percentages in lieu of set amounts to be employers, and punished them accordingly.)

The rent must be a fixed amount paid at regular intervals and you must have a written lease in place to protect both you and your renter.

Independent Contractors: Independent contractors are paid by the job. You will negotiate compensation with them, or pay their rates (if their rates aren’t negotiable).

Employees:

With employees, you have three options: hourly pay, hourly pay vs commission, hourly pay + bonuses for performance.

Hourly Pay

Hourly pay is the easiest compensation model.

Pros: Both you and your staff know exactly how much money is going to be paid per pay period.

Cons: If your employees are making the same amount hourly regardless of what they’re doing, they’re less likely to upsell. They have no motivation to work harder than they have to, basically. This could become a problem if the clients aren’t happy (which they won’t be if your staff aren’t motivated to keep them happy).

You might also attract the wrong employees. Unless the hourly wages are substantial, salon professionals who are happy to bring in flat hourly wages instead of working on a system with commission incentives either aren’t very experienced or aren’t very good at what they do, as most commission systems enable employees to far exceed typical hourly base wage amounts.

My Opinion:

Nobody is more committed to meeting the needs of a customer than an employee whose financial success is determined by how satisfied that customer is.

Employees who have the incentive to upsell in order to increase their own bottom line (and ensure client retention) are more attentive, more hard-working, and more effective professionals. I’m not a fan of the hourly-only compensation plan.

Hourly Pay vs Commission

This is the second best compensation model, in my opinion. This model offers the employee a base hourly pay (which exceeds the prevailing minimum wage) versus a commission percentage. At the end of the pay period, the hourly pay is compared to the commission amount. The employee receives the higher of the two.

Pros: You know at least how much you’ll be paying out per employee and your employees know at least how much they’ll make every week. They are still motivated to upsell because obviously, they’ll want to make commission (if they are happy making minimum wage, tell them to pursue a career at McDonald’s or one of the many fine retail establishments in town and boot them the hell out of your business).

Cons: I don’t really have anything to add here except that the pros of the hourly + commission bonuses system outweigh the pros of the hourly versus commission system by leaps and bounds, so it’s not my favorite.

My Opinion: This compensation model leaves itself open to abuse for the same reason the hourly only system does, but it’s less likely to be abused. As opposed to commission only, your staff can’t bitch about being asked to perform duties outside of the ones they perform behind the chair. They’ll be getting fairly compensated for doing towels, cleaning the floors, and answering phones if you need them to.

This compensation method can also be used to easily evaluate employee performance. Many salons have policies in place that make continued employment conditional on whether or not the employee makes their commission. For example, if an employee does not make more in commission than they do in hourly for three pay cycles in a six month period, their employment will come under review to determine what the problem is, whether it can be corrected, or if it’s time for the employee to find work elsewhere.

Hourly Pay + Performance Bonuses

This is my favorite compensation model. It is very similar to the hourly vs commission pay scale, only instead of a set commission, you offer tiered commission based on performance goals.

For example, your employees make $12 an hour, but if they make over a certain amount in gross sales that pay period, they earn a modest percentage of that as well. If they perform beyond higher threshold, they become eligible for a higher bonus. You can set as many performance thresholds as you want, assigning higher percentage bonuses to each.

Pros: Your employees are motivated to make more money, since the more they make, the higher their commission bonuses are. They will always make at least their hourly rate also, so they know what they can expect come payday, at the very least.

Cons: This compensation method requires a little more work on your part when calculating payroll and may not work in touristy or seasonal areas that experience strong fluctuations in client traffic. I strongly recommend using a carefully crafted spreadsheet or a computerized salon management system to calculate everything for you.

My Opinion: I like this compensation method and think it works well for most salons. It encourages owner participation and diligent management.

Commission Only (CIRCUMSTANTIALLY LEGAL)

This compensation model offers the employees a set percentage of their service and retail income and does not guarantee them the prevailing minimum wage. If they don’t earn, they don’t get paid.

This system is unjustifiably expensive, unsustainable, and unacceptable.

Pros: This is a pro most owners don’t realize isn’t permissible in America–you only pay money out to your employees when they’re making money. If they aren’t making money, you aren’t spending any. However…

Cons: It’s harder to motivate employees to do any additional work (like cleaning). If they’re not getting paid, they’re not going to want to sit in the salon all day. Also, this compensation model may not be legal depending on the pay period. The owner must carefully track hours and weigh the prevailing minimum wage against the commission to ensure that the employee is making at least minimum wage for each hour worked. Failure to do this could cause serious issues with the Department of Labor.

Commission vs hourly is the correct compensation method.

My Opinion: I do NOT recommend this method. It’s not worth it to risk violating federal law, and the system itself, with it’s high commission split, is flawed. (Read this post to find out why this system does not serve us at all and never has.) Besides that, commission-only sucks for employees, especially if the salon owner isn’t managing the business and feeding them outdated, damaging lies about what their responsibilities are.

Making a Choice

To choose the right compensation model, several additional factors must be weighed and considered, including your operational overhead, your product cost-per-service, and the amount of time it takes for each service to be completed. First, you will need to use that known data to calculate your service prices. If your salon has sales data, use that data to run projections to determine what you can afford. If your salon hasn’t been established, the best you can do is make an educated guess to determine your average hourly ticket sale and run projections based on a deflated version of that figure. (Always underestimate when running projections of any kind.)

The following opinions are based on my observations of salons over the last few years I’ve worked as a management consultant.

  • High overhead salons (salons that are in high-rent areas utilizing high-cost product and equipment) will benefit most from an hourly-only pay structure. Once your high overhead salon is busy, you can consider switching to an hourly vs commission or hourly + performance bonuses structure. Until you’re certain you can cover your staffing cost, you shouldn’t offer more pay than you can afford. Your goal is to keep your overhead as low as possible, especially since the higher your overhead is, the higher your prices will have to be in order to make a profit. Ideally, salon owners will keep overhead as low as possible. Unless you’re offering substantial benefits to your employees, it will be hard to recruit and retain talent with hourly-only compensation systems.
  • Mid-range salons (salons located in reasonably priced areas, utilizing mid-range products & equipment) will benefit most from an hourly vs commission model or hourly + performance bonuses. The goal is always to keep your overhead as low as possible, but mid-range salons that manage their finances responsibly can easily cover their overhead, profit, and pay their employees fairly. Generally, mid-range salons tend to be the busiest since they are affordable but not seen as “discount” salons. This accessibility gives them a competitive edge that makes them more flexible and versatile with regards to their approach to compensation.
  • “Discount” salons (cheap rent, cheap products, cheap services) will benefit from any compensation model. 

You deserve to make a profit.

Don’t let anyone tell you otherwise. You are making a tremendous investment in your business and you should absolutely expect that investment to pay off eventually. Don’t put your employees at a financial disadvantage or expect from them more than you’re owed, but don’t be so generous that you put yourself out of business either. Work your numbers to find a system that works for you. (Hint: 50% of gross sales isn’t it.)

78 COMMENTS

  1. My wife rents her space at a salon as do all the girls at this establishment. The owner is forcing meetings and other rules that if broken, a fine is imposed or she threatens to make them leave. I realize after reading many articles on your site that the salon owner cannot legally do this. The problem is none of the girls have ever signed a contract to rent their space. It is just a verbal agreement. So, my question is: What rights do they have?

    • The salon owner can do whatever they please….its the owners business and ultimately they take on all the risk and bills…i’ve never heard of a contractor stepping up to help a business owner when they are failing..an owner has to set some rules. I think it’s BS that the people renting the spaces think they should be able to do as they please..every business has to have rules regardless of employees or contractors. If the contractors don’t want to abide by the rules and get fined then they should be shown the door. Same difference…don’t want to work by my rules then don’t work here!

      • As a business owner, you also have rules to abide by. They’re called “laws.” If you want to dictate to the people working in your business, classify them properly and pay employment tax.

      • No…booth renters are independent contractors. They should be operating as their own business. The owner is absolutely not allowed to demand unpaid meeting or set rules. Go to the labor board! I have fought and won in a situation similar to this

  2. Well, in general, verbal agreements are treated the same was as written ones. Any exchange of money for space is considered a common law lease. However, it really depends on the landlord-tenant laws in your state. A good deal of states don’t have any protections for tenants at all. To be honest, if I were her, I’d remind her of her role as a landlord and refuse to pay any of these fines she imposes. It is incredibly unlikely that she could sue for payment of arbitrary fines that clearly violate the landlord-tenant relationships. She should really consider finding a new space to rent. Unfortunately, owners like that aren’t often inclined to change their behavior and most states make it impossible to litigate against them.

  3. Thank you so much for your feedback. I will pass this along to my wife and the girls at the salon. Also, this site is absolutely great for people in the salon industry. You are doing a phenomenal job!!!

  4. I have a question! I recently started working at a salon that is paying me 10$ an hour until jan 1st- after that it is strictly 60/40 commission.
    Since Oct I have only received about 5 clients from them. The rest of the time I am hustling to bring in new and old clients.
    Every month management posts our numbers along side eachother. I have noticed that I have the same number of new clients as the other stylist in my level- yet all of my new clients have been people I have met networking. .
    I have asked management and they say that appts are booked based on stylist level and openings. That there is no favoritism.
    For 3 weeks I haven’t had one new client from them.

    Basically, my question is what should I expect as far as clients go in my salon?
    I can’t help but feel like I am getting the shaft.

    • You’re employed in a salon that isn’t managing intelligently. I suspect that they’ve hired more staff than they have business to sustain. In my opinion, the business bears the burden of responsibility to the stylists they employ. They need to ensure that you’re busy enough to make a living–especially if they’re putting you on this “strict” commission compensation system. (Which, btw, may or may not be legal since they have to ensure you’re making at least minimum wage for each hour worked. Your commission must meet or exceed the amount of money you would have made each hour at the prevailing minimum wage.) Unfortunately, a lot of salon owners believe it’s their staff’s job to obtain clients for their business. I think that’s bullshit. If you’re going to own a business and employ staff, you need to make certain that you have the business to sustain those employees. That’s why we have federal laws guaranteeing minimum wage–so business owners can’t use employees as slave labor.

  5. What does a stylist do when they learn that they have been “commission only.” My employer also takes 10% from every service to cover product charges. I read your article and tried to sit down and discuss it with her, but she do not take me seriously, said she would talk to her lawyer about it, and treated me as though I was doing something wrong! I don’t know where to go from here. Thanks.

    • You would contact your local labor board and present them with the information you have–pay stubs, employment contracts, your schedule, etc. Most states have a straightforward process for reporting potential exploitation.

  6. I actually runs a salon and I realized that about 65%-75% of my total revenue goes to wages every month (we are on a Hourly Pay +Tiered Performance Bonuses scheme). We have not broken even yet after 6 months. I’d like to know according to your experience, is this ppercentage resonable or are we paying the employees too much?

    • Woah! That’s way too much! There’s probably a few issues here. Without knowing your individual salon, I can only guess.
      The issues I see most often are:
      1.) The goals are too easily attainable.
      2.) The bonuses, hourly pay, or both are too high.
      3.) The salon is overstaffed with underperformers.

      Your tiers should be established based on your average hourly ticket amount. Using that amount, determine the amount an employee would make if they were 65% booked, 70-80% booked, and 80+% booked. Those amounts are where your goals should be set at. Your commission bonuses should be between 3-5% for the lowest tier (some of my clients go as high as 8-10%, it’s all dependent on how you choose to staff and what your budget can handle). For the second tier, most owners I work with range between 5-12%, and for the third bonuses range from 8-15%. Again, those numbers are highly individual and it always comes down to your overhead. If you have low overhead and can afford to give higher bonuses, go for it. If you can’t–don’t. In any case, you never want your payroll to exceed 40% of gross. It’s unsustainably high.

      I often find that salon owners overstaff also, which causes payroll to be higher than it should be. If your existing staff can’t consistently hit performance benchmarks, they have to be cut back or laid off. Hire small, then add more staff members as your existing ones book up.

  7. When hired at a salon I was never asked to sign anything. I still haven’t after 8 months, and was told I’d be a “commissioned stylist. I bring in all of my own clients and bring in the salon over 4000 a month at only 50% commission. my question is this- if I performed a 4 hour service and the “client” called and said she was not happy- is the owner allowed to revoke that service from my paycheck because she’s having to “fix” it?

    • If you have no contract stipulating otherwise, yes. As long as she pays you the equivalent of the minimum wage, she can make all the arbitrary deductions she wants. This is why I highly advise getting all job offers in writing, because if you had a written offer or agreement that you would be compensated at that rate regardless of the circumstance, this wouldn’t be permissible. If I were you, I’d tell her that I want an agreement. I’d include a stipulation regarding “redos” and “refunds.” Either require a form signed by the customer, with an attached receipt detailing the expense of the correction (and an assurance that your rate will be reduced to the minimum wage for the time spent), or disallow it entirely.

  8. I’m currently working as an assistant in a very small salon. It’s literally just me and her. When I first took the job she told me that her book was usually pretty full, and that I’d be assisting for about 3-6 months depending on my progress (I’ve been licensed for a year). And she said we’d do training. I also do nails for 70/30 commission ( I get 70) and if someone wants to make a hair appointment with me I convinced her to start letting me take them, also for 70/30. Most of the time though, I’m assisting. My thing is, I am getting paid $5 for each client plus 5-10 more for whatever additional service. The most I’ve made from one client is like $20. Which wouldn’t be so bad if her book was actually full, but most of the time she won’t have clients until the end of the week, and it’s only a few. She does weddings and other things outside the salon so she’s fine. But the only time I really make any money is from my own clients that I bring in, but I only have a few and I’m still struggling to build my book. And I haven’t done any training and it’s been 4 months. I also do events with her like fashion shows and photo shoots, and I’ve never been paid for them. She didn’t get paid either, but since I work for her and she’s making me go I believe I should be compensated. I don’t get paid for doing anything as her assistant other than hair, like cleaning or keeping the salon phone(which is a cell phone that I have with me all the time..) I’m not getting paid for that. I said something to her about it yesterday and she said something about stepping up.. Like not always taking out the trash or something. Getting that feeling in the pit of my stomach like it’s time to move.

    • Okay, so you’re right about needing to be compensated for the shows and shoots. Whenever you’re “engaged to wait” (permitted or suffered to work), your employer is required to pay you.

      Honestly, I think your compensation system is WHACK. 70% is absurdly high. It would be better for both of you if you were being paid an hourly base wage regardless of what you were doing, and commission bonuses that are tied to performance. You’re both getting screwed in your current arrangement.

  9. I’m a makeup artist and I’ve been working at a high end salon for 13 years. I’m paid an hourly rate plus a 35% commission on services and 10% commission on retail. They’re have always provided the makeup line/product. Due to poor management choices in the past they now want to take away the makeup line and require the makeup artist to provide all the product and supplies ourselves and reimburse us a”kit fee” which we still haven’t been told what exactly that will be. If we’re required to work out of our own personal makeup kits and provide all our own stuff does that make us independent contractors? I don’t know how to handle this situation.

  10. I have been working in a small high end salon (open two years). I assisted full time for minimum wage for a year before slowly transitioning to a stylist. Starting level one stylist commission is 25% and I am at level two with 30%. The business does not advertising besides Instagram and I we do not get many walk ins. Is a 30% commission (plus deducting some money for color corrections) low? Shouldn’t some of the 70% they take cover advertising so it does not all fall on me?

    • Technically, as long as you’re being compensated the prevailing wage, it’s legal to pay you 30%, but the product charges aren’t acceptable. They’re responsible for advertising the business; not you. Deducting money from your pay for supplies and corrections may not be legal depending on the amount you’re left with and the laws in your state.

  11. I work in a commission on salon I’ve have been here for five years and brainwashed by my employer that I have it so good here. You tell me if I’m over reacting because I don’t think I do. I started out at 50% I am now at 60%. When I stared out at this place I was starting all over again in a new town building clientele I was lucky to take home between 150-250 dollars a weeks when I first started. I work at least 45 hours a week I am expected to clean do laundry handle the front desk ext. I’ve been here for almost 5 years now and make 60% I am pretty well booked now with a decent clientele and I take home depending on the week 360-to a really good week 500. The highest I have ever made hourly when I divide it out is 11. I am also required to stay late at least one day which usually happens more than once a week. Am I in a bad situation?? I feel like I work very hard and sometimes very long hours and should be compensated! Also may I add most days I do not get a break for linch

    • Well, since peoples’ opinions on what constitutes a “good” arrangement differ, I can only present my perspective on it. Honestly, I think $11 an hour on average (at most), with no guaranteed lunch break and long hours is shitty. You could get a job as a receptionist and be hired at $10-15 an hour, with no licensing or education requirements. You’d get lunch breaks, and you’d only be expected to work office hours. So yeah, when compared to other positions you could be working, that arrangement blows.

      You need to be getting paid for your time, not just your services. You should be getting breaks, and you shouldn’t be expected to work excessively long shifts. However, those are my personal beliefs as, you know, a decent human being who believes people deserve to live their lives and be paid a livable wage, lol.

  12. I have a question for you – I’m going to give you a quick rundown of the current situation at my salon.

    Hours worked are being paid in suspiciously even numbers – i.e. I worked 68.95 hours, I got paid for 68. Or 52 instead of 52.74. I know rounding IS a legal reporting method, but it seems a little off. Also, the owner keeps saying “in Arizona (an at-will state), I don’t even have to pay you minimum wage in a commission salon.” From what I understand, as W2 employees, Commission-only is not legal. In any case, she chose an Hourly vs Commission structure which means all minimum wage/time reporting laws still apply. She also threatens that if we don’t clock in or out, we will not be paid for that day.

    She explained the rounding differences with the “well in AZ its different, and FYI I don’t even have to pay you minimum wage.” I’d love to give her the benefit of the doubt but I can’t help but think she’s confused.

    What do you think?

    • She definitely is confused. All states (except Montana for some reason) are at-will employment states. Arizona is not ” different” or exempted from federal law. She certainly does have to pay you for your time. I’ll have to look into the rounding thing, but I’m damn near positive that the only way that could be legal is if the employer rounds up, not down.

    • Yeah, she’s wrong.
      From the FLSA: ” Some employers track employee hours worked in 15 minute increments, and the FLSA allows an employer to round employee time to the nearest quarter hour. However, an employer may violate the FLSA minimum wage and overtime pay requirements if the employer always rounds down. Employee time from 1 to 7 minutes may be rounded down, and thus not counted as hours worked, but employee time from 8 to 14 minutes must be rounded up and counted as a quarter hour of work time.See Regulations 29 CFR 785.48(b).”

  13. I am a salon owner and REALLY need help setting up the hourly + Commission performance incentive plan you suggested, SO happy, never heard of that before. Where can I go, who can I hire to help me set this up for my 4 employees. It’s not my wheelhouse so I need help setting it up, teaching me a little, then I can soar on my own.

    • Hi Veronica! Salon compensation restructuring is actually my specialty, but I know of a few other consulting firms that might do it also (none specialize in this industry though). If you’d like me to help, I have availability beginning on the 15th through the 25th of this month, just let me know through the email form on the Contact page.

  14. I have worked for a salon 9 years and get paid by commission. I have been paid 50% since day 1. The salon owner gives me a 1099 form. Is this the correct way for me to pay taxes or does she have to give me a w-2 form? Also I was told I have to file a separte form to pay social security and medicare which would add about 14% more than what I already pay. I AM RELLY confused.

  15. I had a question for you;
    A co-worker of mine, recently opened her own hair salon and wants me to work for her. She told me to come up with a plan on how I want to be paid, but I’m not sure what is the best method for us both to thrive. She is a friend and I want her to succeed in her shop, so I want to come up with a plan that is fair and doesn’t just benefit me. Especially since her husband is a business man and is also co owner and doesn’t really seem to be on the same page as his wife to accommodate me. But I do not have a clientell yet I need to still build and a majority of the time I would be helping her with clientell she brings in, and assisting with maintenance of the salon and Im sure whatever else that she needs because she just opened. You said that hourly pay+ Performance Bonuses + Automatic Gratuity is the best, but I don’t really understand how that works, can you break it down for me. I also need to write out a legal agreement once I figure out how I will be paid, do you know a website that can help me or someone in CA that can help since thats where I’m located. Or any other suggestions would be helpful. Thank you

    • Okay, so my first piece of advice is this: never work with friends unless you’re willing to risk that friendship, and never work for husband/wife partnerships, especially if the husband assumes the role of the “enforcer” in the salon and has no experience in the industry.

      Should you choose to go forward, the best method would be one in which you earn at least California’s minimum wage, plus *reasonable* performance bonuses (either a 3/5/8% structure or a 5/8/10% structure, whichever works best for the salon), which would be contingent on whether or not you hit sales goals. Those goals are set based on a number of factors (service prices, reasonable expectations of performance, the salon’s overhead). Service charges (automatic gratuity) may also need to be confirmed as legal in California, and the process for utilizing them will have to be followed precisely. (Thankfully, CA has great resources for compliance. Their website is how every state’s website should be.)

      I don’t know of anyone that does compensation structuring in this industry who also has a solid grasp of federal and state labor laws aside from myself. Compensation structuring has become my specialty and primary consulting service, but I do require that the salon owners I work with have their compensation structures and their employment practices reviewed and approved by an employee rights attorney in their state prior to implementing them to ensure compliance.

      This compensation model is best for the salon and the employees within it. If her husband can’t see that paying employees on a structure that ensures the salon pays less than 35% of gross sales in payroll is preferable to an “all or nothing” structure paying 50% or more of gross sales while running the risk of audit and labor violations, then they’re beyond help and destined to fail. California and New York are two states in which you DO NOT want to run afoul of the law, as they are the two states that are most protective of employees.

      Please understand that no website or template should be used to form a legal contract. If you or the salon owner aren’t attorneys, don’t attempt to act as one. I get requests all the time for templates or websites to draft contracts. That’s a terrible idea. State laws are different and legislation changes all the time. Those documents are of critical importance. Put them in the hands of a professional.

  16. Hi Tina!
    Our salon has been open for one year. My wife is a rockstar stylist and I am co-owner/salon manager that you seem to be very wary of. 🙂 I do understand this business, as I have helped her to build her own clientele in booth rental salons for 6 years prior to opening our own, upscale salon, as well as managing her finances/accounting and doing her marketing. I was attracted to the Strategies team-based system for our salon initially, because it reminds me of the team-based system I experienced in the 1990’s while working in the rubber/plastics industry, but I want to hybridize it a little, because it’s not perfect in the way Neil lays it out. ANYWAY….. we are growing slowly and wisely. We have 6 chairs, one of which my wife occupies (3 are empty). She pays booth rent to our LLC, and she pays for all backbar and color supplies for her and the other stylists as well. Overhead/utility costs are low. We use Millennium software, and can track everything. One of our stylists works 3 days per week, and she is running at 82% productivity YTD, which is great! The 2nd stylist works 2 days per week, started 3 months ago, and is already at 80% productivity too. They get paid $12 per hour plus tips (averages out to $18/hour or so at this point + cash tips). When they acquire new skills, sell more product, etc…, their hourly wage will increase to a maximum of $15 over time. They both have 25+ years experience and generate $400 revenue per day, so I’m making roughly 65% and the stylists are making 35% plus tips. (They are happy with the part-time arrangement, and don’t want to add more days) I couldnt’ afford to start them out as employees, so am really pushing the envelope I discovered today by classifying them as independent contractors. (We supply backbar, color supplies, etc…)

    We are getting ready to hire a junior stylist with 3.5 years experience, starting her at $10 per hour plus tips, starting at 3 days per week, moving towards full time ASAP. I spend TONS on marketing. ($1750/month… way too much). I’ve worked 50 hours per week for the past year, and make nothing, but that’s okay, because I’m investing my time now for a future pay-off. We have no debt, and are pretty much breaking even as a salon (not counting my wife, who is doing well, and is still running her own book, and not on Millennium). But then again, all our money is going into marketing, and investing in new website, pictures, decor, eye vacs, etc… We are now set up with everything, and should have very minimal additional investment for the salon, so the salon can start covering backbar supply costs instead of my wife paying for them. My goal is to transition completely over to an employee hourly, team-based pay for performance/bonus structure by the end of June. I’ll set up bonuses for the stylists on certain parameters (client retention, product sales/%service$, revenue per hour, etc…) Ideally, the bonuses, hourly pay, and business taxes will max out at 42-45% of gross revenue per stylist, but at least I’m not stuck with commission and lack of control that commission salons bring.

    I’ve got a great system going so far, and by adding one more stylist, we should generate enough revenue to cover employee costs, taxes, etc… and hopefully hire a part-time receptionist. Could you please help me?? I want to hire you as a consultant to help me set up the best team-based goals into Millennium, but your website says you are not accepting new clients. Pretty please??? 🙂 Thank you! Love your advice in these comments….
    I REALLY NEED YOUR HELP!!! We don’t want to put in all of this work to end up making a measly extra $10,000 per year for all the extra headaches like most salon owners do. 🙂

    • LOL! I’m only wary of co-owner husbands like the one your wife had to deal with. “The Enforcer,” is what I call them. They’re not really involved in the business except when the female owner needs him to strong-arm the employees. You don’t seem to be that guy.

      Your situation is ideal, and it’s how I try to start all of my startup clients. (No debt, reasonable expansion, payroll not to exceed 35% of gross sales.) For the first year or so, while you’re building the business, it’s normal to burn a lot of money on marketing. You’re definitely at a point where you could afford to take on an extra employee or two and build them up. I get very nervous when I hear clients tell me they’re investing a lot into websites, since I’ve seen so many designers absolutely shaft clients for tens of thousands of dollars for simple template-based sites. (I built http://www.polished.ca for a client for $2,000 over the course of a weekend. I not only built the site, I wrote all of the copy on it. There’s no need to spend in excess of that for a single-location salon website.) Decor is another area I cringe at. Personally, I don’t approve purchases that don’t generate income, especially in the first year. The salons I consult for are very simple (but elegant). This minimalist movement has been awesome for them because they’re able to afford a chic look for far less money. The Eye-Vacs though are totally worth the investment, in my opinion. If you can afford them, go for it.

      It’s best to shoot for 35% or less in payroll expenses, but some clients of mine are in really ideal circumstances and don’t mind the extra 10% if it means they can keep their prices competitive. (These clients are cool with driving Acuras instead of Ferraris, and those are the kinds of people I enjoy working with most, lol.)

      I’ll shoot you an email and see what your numbers look like. It usually doesn’t take me long to come up with a few sample structures for you to choose from. 🙂

      • Thank you! I’m working on getting all my monthly numbers together updated on a spreadsheet. Went a little overboard, but our salon looks really nice, and I did most of the renovation myself. Spent $50K to get everything up and going. Spending way too much on marketing, and getting ready to cut back somewhat, and do effective marketing that is less expensive than what I’m doing now. But like I said, we are to a point where there are no new big expenses left to do. I put about $2300 into the website, including the photographer who took the pics, plus $200 on lunch and outfits for the stylists. 🙂 $99 per month SEO/hosting sounds expensive according to your latest article. It’s a custom site, but I could eventually have someone copy the code, which I supposedly own, and put it somewhere else. Willing to give it a year to see where I end up on Google. Thanks for the offer, and your extensive and wise advice on your site. I’m going to live here awhile until I read everything pertinent to us! After I’m compliant, I’ll send you our URL to check out our fancy decor. lol

        • $50k for a hair salon is actually really impressive. On average, my clients spend anywhere from $75k-500k (depending on the size, the area, and the number of stations). I work really hard to keep their spending below $80k. You got a great deal on the website and photographer, so that’s awesome. I don’t consider that to be excessive at all. (One of my clients was charged $22,000 for a simple 5-page website she could have built herself if she had spent a few hours watching WordPress tutorials on Youtube, lol.) $99/month is excessive. I host seven websites on my package through Name.com for $25 a month (or something like that–it’s cheap). All my SEO is automated with free plugins, and they definitely do the job since this site in particular consistently shows up in the top results whenever anyone searches for anything related to the beauty business. Depending on what they’re doing on the backend, it might be worth it to give it a year and see how it goes. You can always transfer the site to your own host in the future.

          It’s awesome that you guys have your numbers together. Probably the most frustrating part of my job (aside from trying to convince people to ease up on their spending) is getting their data so I can generate an output for them. If you have those things already, it’s a piece of cake for me to do what I have to do. 🙂

      • And I’m not the “enforcer,”…. I’m the freakin receptionist, marketing manager, inventory control clerk, salon manager, janitor, decorator, maintenance guy, cleaning service and towel boy. 😀

  17. I worked at a salon for all of 6 weeks and quit because I felt I was being treated unfairly. The salon owner, who has no experience in the hair industry, offered 42% commission to start and because I needed a job and knew that I would move up quickly I accepted. We got paid bi-weekly, I noticed that there were services that I recorded that were not there on my second paycheck because a coworker brought it to my attention. When I spoke to my boss about it, she brushed it off and said to show it to her another time. She was also not giving me any of my cash tips because we were not allowed to go up and actually check out our own clients. She did all the scheduling because she answered the phones and had even changed the system to where we were no longer allowed to see how our coworkers schedules were looking, we couldn’t change the services that we provided if the client changed their mind, nor could we schedule them ourselves anymore. There were four of us: 2 commissioned and 2 booth renters! I made enough to pay booth rental, but she made more from us commissioned employees than she did the booth renters. She had us work all day from open to close which was 9-6 sometimes later with no lunch breaks, we had no mats to stand up on (the booth renters had to order their own mat and paid about $80 for one), and she offered services but did not have the products for us to provide the services properly so a lot of times I had to come out of pocket to get them and was never reimbursed. When we got our pay checks, she never included the commission that I earned from retail, my tips were always incorrect because I wouldn’t get paid for the clients that I serviced so if they left a tip on their card, I didn’t get that either, I would never receive my cash tips but I know clients who tipped anywhere from $20-$40 after a service. All the paychecks that I received were incorrect because all services were not included yet she got paid for them, I was still getting only 42% when all of the products I used were purchased with my own money, she referred to us as “independent contractors” I’m assuming because she was not taking taxes out of our paychecks as well. The day that I quit, I asked her for the money that she owed me because I had all of my proof with the previous paychecks, she refused. My last paycheck, she mailed to me, and the amount was absurd. She literally just wrote a number down and expected me to accept that, after my calculations from the check she had given me it showed that from a two week period I only earned $6 in tips and she claimed to have paid me for a $160 ($67 after commission) service that she didn’t pay me for since my first week…so there was no way that was included in a $300 check. She also did not provide me with any kind of documentation showing what I was paid for, so when I went there I asked her about it. I was not rude or loud, and she refused to give me documentation or even show me documentation and she refused to pay me for the services that I had previously asked her for. She called the police after I left and pretty much put a restraining order on me because I can no longer go on the premises or make contact with her or the business. This was a horrible situation for me especially in such a short amount of time. I’m not sure how I can go about this situation as far as getting what I’m owed or just letting it go, but I don’t want other stylist to come in and let her convince them that she wants them to succeed and that’s the place to do it…she does real estate so she knows how to be slick with her tongue to try and convince others that they’re making the right decision.

  18. I recently decided to add microblading to my list of services offered. I’m currently a licensed cosmetologist and make up artist. I receive on 50% commission with no guarantees hourly wage. I will be paying for the microblading training out of my pocket. What would be a fair commission to expect to receive from the service?

    • Well, if you’re an employee, 50% commission with no guarantee of an hourly wage is actually illegal, so I’d start there by informing them that the legal way to compensate their employees is to pay commission vs hourly, awarding you whatever is higher. From there, I’d either negotiate the possibility of them reimbursing you for the cost of the training over time, or asking for a per-service flat rate bonus to make up for your education expenses.

  19. Hi Tina! I’ve recently started transition willing Stylists to hourly from straight commissions and would like to incorporate a percentage of sales on top of the hourly. The results have been great thus far but I need help figuring out a model that is going to work. I’m tired of guessing and need some expert advice. I tried sending you a couple of emails but they were kicked back. Please help!

    • Hi Jesse! My mail server has been broken for a while, which was fine anyways because I couldn’t take new clients up until recently. I’m emailing you from my private email, so keep an eye out for it!

  20. I am a 8yr employee who manages a staff of about 8 stylist and 3 front desk (sales are up in services and retail this year by about 40% from last year! Woohoo) and I am only compensated for the services I perform…how should I approach my salon owner for additional compensation? What would be fair? Thanks in advance

    • You need to be paid a salary or at least an hourly rate for your management work, since that’s time you’re likely not able to generate service income. What’s “fair” is subjective. Highly subjective. It depends on your local economy, the salon’s finances, and your management experience. (For example, I wouldn’t even entertain an interview with a salon owner unless the salary started at $65,000 annually. Then again, I’m also a dedicated manager. I don’t take clients at all since that’s not part of my job.) It’s hard to function as the manager and a stylist, which is why I don’t. Calculating an appropriate salary for someone who is doing both jobs is something I can’t even begin to untangle, because I have no way of knowing how much time you’re actually spending on management tasks. Paying you a management salary and paying you sales commissions doesn’t make a whole lot of sense for the salon owner. Having you function in both capacities doesn’t make sense for either of you.

      It’s possible your job description differs a whole lot from mine. When you say you manage the staff, do you mean that you supervise them? Because that’s way different. In that instance, you’d be more of a department supervisor than an actual salon manager.

  21. Ok so yes I guess it sounds more like I supervise the staff and OMG yes my job description is a mess so here goes a list of tasks: I help with formulations, run staff meetings, do one on ones with each stylist monthly to discuss retail & service numbers. Delegate tasks like ordering supplies…train new assistants and staff members on our policies & expectations. I also interview potential employees. Go to continuing ed classes and come back and share knowledge with the staff…I have about 3 yrs retail management experience before I started doing hair 8 yrs ago, my role in the salon has kind of evolved into what it is kind of by default because we’ve seen about 3 different “waves” of groups of stylist come and go while the owner just hires whoever walks in. I got tired of the drama when they didn’t work out so I started stepping in to save my “work environment” …My salon owner is sending me to a 3 day business management class next weekend to learn some ways to save money & motivate staff. We have an awesome team but a lot of them are new….help me!?

    • Oh god, you are doing way too much. You’re effectively being given business management tasks and floor management tasks, plus a clientele of your own to manage. It sounds to me like you need to have an immediate talk with them about clarifying your job duties. They need to understand they’re asking way too much of you (and not paying you nearly enough). So, your plan of action is this:

      1.) Have a meeting with the owner. Tell her to make up her mind. She can have ONE of three things, but not all of them:
      *Stylist: A person who does hair for clients exclusively and has no management duties.
      *Floor Manager: A senior stylist who oversees employee training, helps them with formulation, provides continuing education classes, conducts one-on-one performance evaluations, and sits in on interviews (and retains a say in who is fired). This person gets PAID EXTRA for those duties.
      *Salon Manager: An employee who oversees the business management overall. This person does NOT manage a clientele or work the floor with the employees unless she’s training someone or doing daily quality assurance checks. She doesn’t just deal with the hiring and firing, it’s her job to monitor performance, keep on top of the salon’s policies and practices to ensure compliance with federal and state labor/tax laws, hold individual and team meetings, deal with vendors and inventory, ensure the salon’s expenses are within budget, design new service protocols, create promotions and direct the salon’s marketing strategy, and keep the staff motivated and educated. This person gets PAID A LOT EXTRA for doing that job.
      If she agrees to placing you in one of those roles, you need the job description written down in clearly-defined terms, so she can’t continue treating you like some kind of Swiss Army Multi-tool employee. You are one thing, or you are another thing. You are never all of the things.
      2.) Your second task is to be willing to step down if she refuses. I know this is hard, because I’m like you. (I can’t stand to see people fuck their business up, so I can’t help but step in to help them even if it means I’m not getting paid.) But you have to be willing to let her be her own worst enemy if she won’t recognize that your skills and time deserve to be compensated. Some managers accept stock in the company in lieu of salary–I do NOT recommend this. Salon owners may offer this as a way to placate you, and most never actually plan to pay you your portion of the dividends when it’s time to settle up. So, be ready to say, “Alright, well, since you can’t pay me to do this extra work, I’m going to resign as manager and focus on my clientele.” Then, you have to actually DO it.
      3.) If you decide to return to a stylist position exclusively, start looking around for other options. Without a competent manager directing that business, it’s highly likely to fail. (I’ve seen overwhelmed salon owners close up completely when they’ve realized they’re just not capable of taking on the job.) Be prepared for that. Keep your eyes open for alternative employment, because you never know…

  22. Hello Tina! I’m a soon to be salon owner o have my destined place, service and look sorted out. I Really need help I what I will offer my future employees. I was thinking 9.50 an hour + 3% commission is that except able in NY I don’t know how buisness will go and I don’t wanna pay way more than I could afford. I will need 5 employees for a full service salon hair,makeup,nails etc.

    • Start conservatively and raise wages once you get an idea what your sales will look like. It depends on the area in NY, really. In somewhere like Owego where it’s crazy cheap to live, $9.50 would be perfect. If you’re in Manhattan, it might be more difficult to find employees capable of surviving on those wages.

  23. I am currently a stylist in a hourly verses commission based salon. I’m aware that if my commission is less than minimum wage I get paid hourly. That has only happened once in the past 8 months. My issue is that I am required to be there during my scheduled hours whether or not I am busy. There are days I am allowed to go home early. However we do not have a receptionsist, and all of the stylist do not know how to close the drawer at the end of the night. So whether I am busy or not I am expected to stay late while the other stylist finish so I can close out the drawer. BUT I do not get any extra compensation for this, we also are expected to dust, call reminders, and clean when not busy. What is the best way to approach this with the management, and is this fair?

    • If you’re classified as an employee (W-2) and your employer is FLSA compliant (ensuring you make at least the prevailing wage), you’re obligated to obey according to federal law (or forfeit your position). As long as the salon owner is contributing to your employment taxes and paying you at least the prevailing wage or guaranteeing it by making up the difference when your commissions don’t match it, they’re not doing anything wrong or illegal. Whether or not it’s fair is subjective. If you feel you’re not being paid enough for the work you’re doing, you’ll have to approach them about it and renegotiate your pay.

  24. Hi Tina!

    Your article is very informative! and it it helping me tremendously. I’m in the beginning stages of starting an upscale braid and extensions salon and I would love to contact you directly. I have a question on how to do the Hourly + Performance + Automatic Gratuity for the types of services I would provide.

  25. Help!
    I’m in a position where I have been working 2.5 years at a high end salon @ 50/50 commission (w/ no chance of hourly). I am the busiest hair extensionist in 2 counties in my area after doing my research. However, I am not inclined yet to booth rent, I recently asked my employer to discuss new options on my tedious specialty extension work. Currently this is my compensation structure on this service:
    *Cost of hair (doubled to retail pricing + sales tax)-employer keeps 100%…despite my sale of it
    *My labor is $100/hour – employer keeps 50%

    …Hair extensions are easily the highest ticket in a salon & a specialized service due to hair, installment, cutting, and coloring or any other add-ons if necessary. My average head for hair + install is around $575 ($375 for hair and $200 for 2hr install–which is still cheap!). I’m making $100 my cut. I’ve been doing extensions for 7 years and am certified in every method between 5 different distributors. This ludicrous.

    I recently attended an 8 hour extension class and the director of education for a huge distributor that lead the class said that even at commission salons, stylists still make at least 10-20% on hair sales + 100% of the labor fee because Extension work is a completely manual service. The 80-90% that the employer collects from the hair markup is plenty enough to cover the utilization of my chair for this service & electric, with come profit left over.

    As an experienced extensionist, it is normal to charge $5/per hair strand + cost of hair. I am a quick installer, so this technically is my best option-but that would make my average extension service ex. “$5 x 200 strands full head + $300 hair=$1,300. I dont feel comfortable alienating my clientelle. I think asking to keep 100% of my labor fee and possibly 10% commission on the sale of the hair seems okay?

    Opinion? I am literally preparing graphs and spreadsheets to have this meeting with my employer so that there is no backpedaling!! She is saying she doesn’t have much room to wiggle for compensation, but willing to negotiate.

    • Actually, my friend Chandra (also an extensionist) would be able to answer this from the perspective of a professional better than I could, but I can provide the salon owner’s perspective.

      Without knowing your employer’s expenses, it’s difficult to say whether or not the profit made from the sale of the hair would be enough to sufficiently cover her operating costs, but what you were told by the distributor’s educator is blowing my mind. It’s as irresponsible to generalize about salon employment and compensation as it is to project profit per installation without knowing the salon’s costs. Essentially, that’s what an educator is doing when they tell you how much you can expect to earn per install from your employer. They have no way of knowing that owner’s practices or their overhead, so to give any of you the impression that you’re entitled to literally 100% of the installation cost is–just wow. That’s all I can really say about that, lol.

      That said, your prices are extremely competitive, and I think there is certainly room to negotiate with regards to not only your commission on the sale of the hair, but your compensation in general. Because it seems as if your employer isn’t guaranteeing you the prevailing wage (since you said there’s no chance of hourly), I don’t consider it unreasonable for you to expect more in commissions if she’s unwilling to change the compensation structure. (After all, 100% of $0 is still $0.)

      In general, my opinion is that many professionals fail to understand the tremendous costs of operating a salon and tend to ask for far more compensation than is reasonable, sustainable, or appropriate, but when employers don’t guarantee livable wages, that opinion shifts. Employers, as far as I’m concerned, have a responsibility to ensure their employees are taken care of. If they aren’t doing that, it’s up to you to take matters into your own hands by aggressively petitioning for higher commission rates.

      I’ll link Chandra to this post. I know she’ll have more to add. 🙂

  26. As a salon owner and industry vet I just want to thank you for what you are doing! Your arrivals are informative both owners and hairdressers. I always make sure my staff understands how and why they get paid how they do and wether they stick with me or not they need to be aware of the laws that are set in place to help protect them. Thanks you! Looking forward to more from you!

  27. Hi Tina,
    I stumbled upon your page today and it has been very informative!!
    I rent a studio space out of which I operate my salon business. I have considered bringing on another stylist who could I could split the schedule with, bring in additional revenue, and help out when I accommodate on site wedding parties. She would be my “first employee” so I’m unsure of which compensation type plan I should offer or where to begin. I would want her to operate under my business name and provide her with all of the products to use on her clients. Any advice you have would be greatly appreciated!!

    • Hey Kristen! The best compensation structure is the hourly plus commission bonus structure, so you’d offer her a guaranteed base wage that meets or exceeds the prevailing minimum wage in your state, and offer her bonuses when she hits certain goals. I’ve written more about it here. So long as her wages are accounted for in your service prices, you’re remaining busy, and you’re scheduling strategically, it shouldn’t be a problem at all to cover the cost of her wages.

  28. Hi I have a question about retail compensation..when a stylist or renter sales retail. Do you give them a percentage of the full retail cost or the percentage on retail profit .. example .. bottle of shampoo sales at Salon for $20 .. do I give them 10% of the 20 ? Or 10% of the $10 that I actually profited ..? I just doesn’t make sense that I’m actually paying them a percentage of the full 20 when I had to purchase that product for $10 ..??!?

    • Typically, you pay a percentage on the retail cost. If you’re paying 10% on $20, you’re still netting $8 in profit on that bottle, with the professional earning $2 for demonstrating it, consulting with the client about its use and benefits, and ultimately selling it. If you’re paying 10% on the $10 in profit, that’s a single dollar’s difference, but that dollar might be the breaking point for professionals who don’t particularly like to waste time selling when they could make considerably more executing services. You can do what you like, but don’t be surprised if you see falling retail sales due to lack of incentive.

  29. I am a commission only hairdresser in southern california. There are 7 of us plus the owner…its also an eyebrow threading shop. The 2 threaders are paid hourly but the owner started giving them 1099s like she does with us the hairdressers. If we don’t do anything that week we don’t get paid. We have to follow a schedule. She says we can pick what days and hours to work. On sundays only one stylist and threader work from open to close no matter what. The owner claims she pays employee tax on all of us that receive 1099s. She tried firing me for having to leave at 2:30 when my schedule says 10 to 5. After i had finished all my appts.(i am the most busy stylist there). She recently raised the prices to most services…but keeps the difference we have to write it off to the side ex: haircuts were 20 not they are 25 but i only get commission on 20 she keeps the 5. Color services are the worst…a full highlight with a root color and hair cut will run 195 starting price and she takes 20 for herself and pays us 60% of 175. She provides the products. We are constantly having to get on her to order color that we need which is why she said she is taking that extra money from the services. If tax conversations are brought up she geta defensive. I am always coming in early and staying late while not having time to even eat anything from 10 to 8pm 2 to 3 times a week (my own fault i just get so busy.) She requires us to buy and use styling products she sells. We also have to sell and we get 10% commission. We have to sweep/mop. Wash towels and clean the bathroom…basically clean the shop while she doesnt do anything. To add to all this its her first salon and she has no hair experience or license at all. I need to know what my options are. We all feel used and unhappy. But it seems im the only one who will actually do something.

  30. Hi I was hoping for a little guidance and advice.
    I started working at a salon about a year ago as their makeup artist. Previously I had been a freelance makeup artist setting my own prices and collecting my own income and filing my taxes as such.
    Since coming into the salon, they switched my prices to what they deemed reasonable which is considerably less than what I charged as a freelancer. They also take 40% of everything I do. I do not use anything in the salon to perform my services. All of my makeup is my own, including all sanitization and disposables, bought with my own money. I travel for onsite weddings a lot and pay for my own gas and travel. The salon does not offer to pay for anything. (Tools, makeup, supplies, travel) I feel as though I am being taken advantage of. I also created all of my own contracts that the salon uses as their own and bring in the majority of my clients through my own personal advertising and networking. What should I do? Am I being taken advantage of? Is this normal? Thank you.

    • The arrangement doesn’t work in your favor whatsoever. You’re providing everything and they’re lowering your rates and paying you 40%? Yeah, personally, if I were you, I’d be out of there. You’ve established your base. If you’re not busy enough to freelance full-time, you’d be better off working another position basically anywhere else.

  31. Thanks for this article Tina. It really is great to have it all organized like this with the pros and cons. I do have one question. I recently went to a Federal Labor law class and they explained that performanced based bonuses get distributed differently than straight pay. I don’t remember the calculation but it has something to do with the amount of hours, overtime and holiday pay that each worker earned over that last quarter. meaning that if you intended to give them a bonus for hitting sales for a period of time and say that came to $50 in actuality it needs to be calculated over the hours worked in the quarter (I believe. I can’t remember if it was the quarter or just over the time you are calculating the performance) So if they worked full time plus over time and had a holiday or two that $50 becomes way more. They were saying that a bonus not performance based could just be distributed to the employee. So the example was that you just give out a $50 check to each employee just because, then it is not subject to that rule. I am wondering how the hourly plus performance based commission falls under this law. If that is the case it could get really expensive. What are your thoughts?

    • Hi Tricia!

      I think you’re talking about the salary threshold changes and how that affects overtime calculation. I’ve linked some articles to help explain how that works, but my recommendation is to ALWAYS clarify in your handbooks/contracts that all bonuses are discretionary and not guaranteed. The primary reason for bonuses to be considered discretionary is that the performance goals and rewards may change as salon performance fluctuates, and as an owner, you want to retain the ability to shift those bonuses whenever necessary. For salons in touristy or seasonal areas, that flexibility is critical to keeping the goals attainable and the bonuses sustainable during lean times. From what I understand, the regulation changes mostly only affect white collar workers. The change was made to keep businesses from exploiting the standing overtime regulations by paying low salaries (from which overtime is calculated) and high bonuses (which I believe weren’t included previously in the overtime calculations).

      More Info Here.
      Bonus Examples

  32. Hello Tina! I recently opened a hair salon in Texas. I am still a bit confused as to what is the best way to pay the employees. They are currently getting paid hourly rate; however, i don’t see any motivation on their end to build a clientele. Salon is not making much revenue at this point since we opened in January of this year. I would want to do the hourly pay plus commission. what would be the best hourly rate and commission percentage? I want to offer something reasonable and of course that I can afford. I am also considering having one of the hairdressers become a manager. what would be the best way to pay the manager? it is an upscale salon that carries a good(expensive) line of products, so you can imagine rent is pretty pricy and well money invested in products is a bit high as well.
    Please Helppppp!

    • Hi Jeroldine! Those numbers are highly individual to the salon. Nobody can give you a one-size-fits-all solution. I have a downloadable toolkit that can help you determine the best compensation and figure out whether price changes will be necessary. You can find that here. Normally, I offer to perform the calculations during consulting sessions, but I’m unavailable until my next book is ready for publishing. 🙁 Just don’t go by anything you hear in networking groups. Anyone who says they have the answer without knowing every detail of your salon’s finances and your local market is full of crap. You can read this post to get a better idea of what kind of information they would need–and even then, without the experience, their advice isn’t worth anything.

  33. Hi, I’m new to all of this so I’m a little confused about my situation.
    I work at a little spa doing blowouts and have brought my own clients over. The owner of the spa says I’m paying as a renter but im paying her a set % every client I do. I don’t have enough clientele to pay as a booth renter so she’s making me pay her 35% of the cost of the blowout. I supply my own things the only thing is use is her chair and water. I come when I have a client and leave right after. She says I’m paying for the water and for the hour I’m there at the spa even if I get done in 30 minutes.
    Do you feel this is normal or not because I’m so confused about all of this!

    • I recommend against that arrangement. You should be paying a flat rental rate. In 5 out of 6 IRS revenue rulings, salon landlords who took commission instead of a flat rental fee were determined to be employers. Not only is this arrangement not normal, but I’d argue that (depending on the specifics) it may not be legal.

  34. Hi! Okay, so I have questions! I am in the process of opening a salon. I myself am a cosmetologist-I haven’t work in a salon though so I’m not super familiar with the different pay structures. I will have 5 stations, manicure, pedicure, facial, and tanning. I am wondering what would be the best pay structure for me to go with. Is there a structure that allows stylist to rent but use my product and perform services such as pedi, mani and facials in the same manner I do – in order to keep consistency? I know it would probably be the best bet to do the hourly wage if I want total control and say about how they perform tasks but I am just worried that’ll cost us too much. I am also fine with them simply renting a space and using their own products. If they wanted to rent, bring some of their own product and use some of mine what would I do in that situation? We are located in a town of about 14,000, there are quite a few salons around but only one other that offers all the services we will so I believe we will have pretty good traffic.
    Asking for the best advice for a salon just starting out! Thank you in advance for any help!!!!!

    • You can’t have the best of both worlds. If you rent space, you cannot control renters in any way. That means you can’t tell them how to do services or which products they can or can’t use. It sounds to me like your professionals need to be employees, guaranteed the prevailing wage. You can use bonus systems if you’d like, but if you’re worried about it being “too expensive,” you really need to read up on how to set service prices. I’ve written a lot about it on the site, but I also made the Service Pricing and Compensation Megakit, which actually does the math for you.

  35. I am so grateful for this site! I’ve toyed around with many options . I’m a new stylist and just bought a salon that’s been in business for 20 years . Owner is staying on. 2 other stylists also. Last year she made just about 100,000 (slightly more) in total service sales .. almost 60,000 of that is owners income alone. I will be working full time , doing a total remodel , and investing tremendously. We live in Michigan . We are considering $6.00 per hour and 30% commission with a gaurentee minimum wage if they have a slow week. This way, they make roughy 50 percent with an average week.. but the more they make the more we make too.. Saving us for when they have slow weeks and we have to pay them more than they made. Since minimum wage for tipped employees is 3.52 we feel this is fair . We want more than anything to be fair .. but we also want to succeed . Is this model something you see workable ? Or .. is strictly commission vs hourly better? Our issue is she pays one stylist 55 percent now , and she will only work 2 days a week . Pays nail tech 60 and provides everything ( her sister) Also pays taxes for them and provides a w2 . We don’t want them to lose out but even current owner knows she is overpaying in some regard. Help me be fair . Please !!

    • Yiiiikes. I advise highly against taking the 3M tip credit. (The reasons for that can be found in this post.) The tipped wage tends to be used exclusively on unskilled, entry-level workers. We aren’t entry-level nor are we unskilled. So, I would recommend rethinking that.

      Instead, I would recommend either commission versus an hourly wage that slightly exceeds the prevailing minimum in your area, or hourly plus reasonable bonuses that are contingent upon the employee hitting certain sales benchmarks (which is how commission works in every other sales and performance-based industry). The hourly plus bonus structure might look like $12 an hour plus 5%, 8%, or 10%, but the employee wouldn’t be eligible to receive any bonus unless they achieved a sales goal. For instance, the first might kick in when the employee hits $2,000, the second might kick in when the employee hits $3,000, and the third might kick in when they hit $5,000. (Don’t use those numbers. Your wages and goals will need to be calculated based on your salon’s unique situation.)

      • Sorry if I was confusing ! We would make sure they get $10 at the end of the week regardless . The $7 is a no matter what payment from us ( 70 percent of minimum wage) with us expecting them to make the other 30 percent and then some, out of their 25 percent commission. So basically , in a 10 hour day, $30 of what they make goes to their minimum wage (10 hours at $10 an hour mandated) . 25 percent of any made above $30 is right in their paycheck . We would only hold credit card tips against them, if they failed to make minimum wage that week. Hopefully this makes more sense . And if it still seems whack.. please tell me! Lol.

        • It’s legal, but I wouldn’t consider it a good system, mostly because you’re going to have a really hard time selling that compensation system to professionals. The system you’re suggesting basically boils down to $7/hr plus 25% commission, versus $10 an hour (where the tips offset the difference). I recommend running that by some professionals to see what they have to say about it, because currently, we offer guaranteed hourly wages that are at least $5 above the prevailing minimum versus 35% commission (and take no tip credit) and have applicants bitching about that, lol. Honestly, if you were my consulting client, I would not endorse that structure–not just on account of the perception issue, but because there are also more streamlined methods that achieve the same purpose and won’t require tip credits.

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