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A long standing custom in the hair salon industry is owners of salons leasing out booths to hair stylists. If not properly documented and exercised appropriately, the owner opens the door for many legal issues. Booth rental is legal in many states but you must adhere to several contractual compliance requirements to completely separate your salon from the renter. In addition, the Internal Revenue Service requires a far more restrictive arrangement to allow separation of the salon owner from the tax obligations of the booth renter. This article is written to assist the salon owner in meeting these various requirements. In addition, the Internal Revenue regulations are described and explained so the reader can understand what to do and how to carry out these rules. 1 Independent Contractor or Employee The underlying issue in the salon industry relates to the independence of the stylist. The stylist is mostly concerned with two personal goals. First is the greater increase in income via separation from the salon as an employee.
The secondary goal is more independence in setting their personal schedule e.g. what days to work and hours of operation. span ‘ Contract ’ Control over the End Result Govern by the Board of Cosmetology/Professional Regulation Collection of Customer Payments Rents can be fixed or have a fixed component and a percentage of the sales the renter collects. The key here is that renter provides an accounting of some sort to validate the sales volume in which a rental percentage is paid. The preponderance of the total rent should be fixed in nature so as to maintain a true appearance of independence for the stylist. Identify in the contract what the rents covers, such as their particular spot in the salon, utilities, access and costs for receptionist to receive all customers and for scheduling. I urge you to have a written contract and a compliance program in your salon. The contract is signed by both parties and should have a life of one year with automatic renewals unless terminated with proper notice (time and statement).
For compliance issues, I encourage you to have the stylists insurance binders copied to your business address. Their binders should have the salon listed as additional insured and have you as an individual listed as an additional insured. Monitor the business license and the corresponding Board documents as identified above. In addition to the above requirements, the IRS has an additional set. For the independent contractor, they must prepare a Form 1099 identifying the rents paid to the salon. This is often confusing as in many salons, the customer payments are collected up front and the salon issues a 1099 to the booth renter identifying their respective earnings. YOU CAN’T DO THIS. The IRS is adamant in making sure the independent contractor collects their own fees for the services they render. Look at the outcome of this particular Revenue Ruling: Revenue Ruling 73-591, 1973-2 C.B. 337 Facts: Salon agrees to furnish, repair, and maintain all equipment;
hair stylists handle own clients; hair stylists provide own supplies; appointments are made through one receptionist; hair stylists set their own hours and have their own keys to the shop;
high back chair elderlymoney from services is paid to the salon;
salon chair for renthair stylist decides what prices to charge;
chaise lounge chair for cheaphair stylists are responsible for bounced checks;
wooden rocking chair free plansand hair stylist are not required to work on salon’s customers. span Hair Stylist Compensation Model However, if you are going to use this tool as a revenue source, then make sure that it is only available to your more experienced and mature stylists.
Generate a contract, require insurance, mandate licensing compliance and vouch the documents (make sure they exist on the premises). Finally, the renter must issue you a 1099 for the rents the stylist paid to the salon. I would love to hear from you. If interested in my services as an accountant/consultant; click on ‘My Services‘ in the footer of this article. If you found this article helpful, please consider a donation to the site. The donation button is just to the right. Even if you don’t make a contribution, I encourage you to read more articles on the website to help you become a better business entrepreneur. Download article as PDFSalon Ownership Made Simple! At Salons by JC, our goal is to provide beauty professionals with a high-end, beautiful, affordable, turnkey opportunity to own their salon in West Hartford’s Bishop’s Corner Shopping Center – one of the most popular and accessible shopping areas in the Hartford region. Our salon suites for rent in Bishop’s Corner are private, luxurious, and fully customizable!
Salons by JC’s salon suites allow you to express your creative vision while operating your own business. You can paint and decorate your suite to taste, all while performing your craft and keeping 100% of the revenue from both the services as well as all retail products you sell. We provide a tranquil and luxurious salon environment at a fraction of the cost so you can focus on what you do best. We take the worry out of running your own business and give you the tools to be successful including a full-time concierge, secure 24×7 access, Wi-Fi, all utilities, styling chair, hair wash sink and chair, mobile work station, cabinets and 6 foot framed mirror. In addition we have a 1,100 square foot education/social center for your complimentary use along with a break room, washer/dryer and more. Imagine hosting bridal party preparation in our conference center that will comfortably accommodate the entire bridal party! We are conveniently located in the Bishop’s Corner shopping center on the corner of N. Main St. and Albany Avenue, directly above Marshalls.