Merry Christmahaukkaquanzaween, salon owners! This gift to you comes from Sarah Boulton and her husband, who are implementing the tiered commission compensation system in their own salon.
Sarah says, “When I first read your article about the nail techs and it broke down their pay scales, I wondered, how do you determine the tier amounts? That, of course, can depend on the industry.”
To determine her amounts, Sarah calculated how much revenue she needed the stylists to produce each hour. Since she’s guaranteeing them $7.25 per hour (the NC minimum wage), she would need them to make at least $20 per hour before she could implement a commission bonus.
Since your overhead, pricing, and state’s minimum wage will likely be different than Sarah’s, you’ll have to play with your own numbers to figure out what works for you, but luckily, the spreadsheet her husband created simplifies that experimentation process–all the tiered scales can be adjusted on the second spreadsheet page!
In Sarah’s case, she bases her staff’s commission bonus on their hourly earnings. For example, if one of her stylists makes $1,000, she divides that by the number of hours they’ve worked. Assuming that stylist worked 30 hours in that week, she brought in $33 per hour for the salon. On Sarah’s scale, that stylist would be eligible for the 10% commission bonus. If the stylist earned $40-49 per hour, she would be eligible for a 15% bonus. If the stylist exceeded $50 per hour, she would earn a 20% bonus. (Her first tier offers a 5% bonus at $20-29 per hour.)
Where product is concerned, the bonuses are determined based on gross sales per pay period. If the stylist sells $100-199, they earn 8%. If they sell $200-299, they earn 10%. $300-399 earns 12% and $400+ earns 15%. Sarah’s husband has designed the spreadsheet to allow you to set a flat-rate commission or a tiered commission at your discretion, so if you only want to offer a straight 10% retail commission across the board, you can!
The great thing about this system is that it makes it so simple for salon owners to evaluate their staff every pay period. If Sarah’s pretend stylist in the example above repeatedly fell short of hitting any of the tiers, Sarah would know about it every payday and would be able to make the necessary adjustments–either manipulating the schedule so that the stylist only worked during busier times, reviewing the stylist’s methods and output to determine if there’s room for improvement, or perhaps reevaluating the stylist’s continued employment.
By far, the best thing about this system is that it ensures compliance with state and federal labor laws and keeps the salon thriving. Because of this system, Sarah can afford to properly classify her staff as employees and cover her portion of their employment tax responsibility (which then gives her the ability to manage the salon entirely since she is their legal, legitimate employer). She doesn’t have to charge questionable “product fees” or “head charges.” Her staff won’t have to deal with competing for business in an overstaffed salon because the system doesn’t allow Sarah to hire more staff than she can afford. She can afford to invest in advertising to keep her staff busy. If the staff continue to meet and exceed these targets, Sarah might even be able to afford to provide benefit packages and continuing education.
Simply put: this system makes Sarah’s salon a very stable place to work since the system is built to keep the doors open and keep the staff happy, all while protecting her and the business against federal, state, and civil suits.
Click here to download the spreadsheet!