Understanding Salon & Spa Pay for Time Worked

August 27, 2022 | By Neil Ducoff | No Comments

You hire a service provider to work full time. Full time, according to basic labor law, is 40 hours a week.

  • If this full-time service provider is scheduled to be at work for 40 hours, the employee needs to be compensated for all 40 hours at no less than minimum wage.
  • If you hire a service provider to work part time, the employee needs to be compensated for all part-time hours worked at no less than minimum wage.

You’re probably thinking that this is pretty basic employer/employee information that all salon/spa owners understand.

Unfortunately, it’s not always fully understood.

When it comes to service provider compensation, the prevailing thinking at most salons/spas is, “I only want to pay them when their hands are generating money.”

What does it mean when a salon/spa only wants to pay service providers when their hands are generating money?

It usually means the following:... Read More

The Dirty Truth About Salon & Spa Service Payroll Costs

August 5, 2022 | By Neil Ducoff | 4 Comments

Warning: The following may be a tough pill for many salon and spa owners to swallow… but it’s one that needs to be swallowed nonetheless.

Ready? Let’s talk salon and spa service payroll costs.

The Strategies benchmark for service payroll (not commission rate) is 30 to 35 percent of total revenue (Service Sales + Retail Sales = Total Revenue) … as it appears on a Profit and Loss Statement.

Every time we post this benchmark on the Strategies Salon/Spa Idea Exchange Facebook discussion group, owners say, “No one will work for that commission rate.”

And of course, stylists and other service providers post high attitude comments like, “I would NEVER give 65 percent of what I bring in to the owner.” Others say, “Based on my skill and experience, I would be insulted to be offered such a low commission rate.”... Read More

The Dirty Truth about Salon/Spa Service Payroll Costs

March 13, 2022 | By Neil Ducoff | No Comments

The Strategies benchmark for service payroll is 30 to 35 percent of total revenue (Service Sales + Retail Sales = Total Revenue) … as it appears on a Profit and Loss Statement.

Each time we post this benchmark on the Strategies Salon/Spa Idea Exchange Facebook discussion group, owners say, “No one will work for that commission rate.”

And of course, stylists and other service providers post high-attitude comments like, “I would NEVER give 65 percent of what I bring in to the owner.” Others say, “Based on my skill and experience, I would be insulted to be offered such a low commission rate.

The Disconnect on Service Payroll Percent

No matter how many times we clarify that our benchmark of 30 to 35 percent of total revenue has nothing to do with commission rates … it is clear that many owners and service providers are having difficulty understanding that we are referring to the total payroll cost for all service providers to the business.... Read More

10 Ways Team-Based Pay Benefits Salon/Spa Employees

January 23, 2022 | By Neil Ducoff | No Comments

We recently received an email from a stylist expressing her concerns about the business she works for converting to Team-Based Pay. Specifically, that dealing with change is a challenge for her.

We always welcome questions from employees so we can provide thorough, and reassuring answers.

To help both owners and employees better understand the benefits of Team-Based Pay, we thought we would share our response on how we addressed this employee’s concerns:

Thanks for reaching out with your questions and concerns about Team-Based Pay.

Yes, change can be scary. Especially when there’s a change in the method of compensation. Our job is to prepare and coach the owner through the conversion and beyond.

  1. Our goal at Strategies is to create amazing growth opportunities … not just for the business and owner … but for every employee. We focus heavily on developing and refining the leadership abilities of owners. Why? Because the majority of owners are technicians that lack essential leadership skills, systems skills, financial skills, communication skills, consistency skills, etc.
  2. Strategies has been teaching and coaching the Team-Based Business Model for over 28 years. We know what it takes for owners to make it work and to realize all the wonderful opportunities it offers to everyone in the salon/spa. The owner you work for is in good hands. Our job is to teach, coach — and hold the owner accountable — to do the work so Team-Based Pay is a win/win for all.
  3. Commission has an inherent earning ceiling for employees. You only have two hands and so many hours you can work a day. You can only raise prices so much. You can only squeeze in so many clients. You should be able to grow your income when your overall performance is high and consistent … even when you can’t squeeze another client in. That’s why we teach/coach that your pay advancement is actually in the hours available for sale on other columns on the appointment book.
  4. We want employees to be paid for all time at work — not just when your hands are busy. Meetings, required training, time training new talent, assigned projects during work time … is, by law, the time you must be compensated for. Commission doesn’t automatically ensure that all hours at work are compensated. On Team-Based Pay, the hours you are at work, except breaks and lunch, are paid at your regular rate.
  5. True employee benefits are severely lacking in the salon industry. With the Team-Based Business Model, we can help owners budget for benefits like paid time off, vacation, holiday, company-paid education, health insurance … and team bonus when the salon/spa hits its monthly goal.

  6. Not everyone is paid the same hourly rate on Team-Based Pay. Paying everyone the same hourly rate is an assumption that couldn’t work in real life. Team-Based Pay has pay ranges for different positions. Each employee’s pay rate is based on his/her length of service, overall performance, technical/non-technical skill, culture contribution, and individual strengths.
  7. On commission, you already work on a “variable hourly rate.” Take your gross pay for the last pay period and divide it by your scheduled hours at work (service time and downtime). That’s what you’re making per hour (on average) on commission. Team-Based Pay brings clarity and consistency to paid time at work. More importantly, you’re paid based on your overall performance and contribution to the company — not by just how much money you bring.
  8. We work very hard to make sure the salon/owner you work for is fully prepared to implement the Team-Based Pay. We won’t allow an owner to implement Team-Based Pay until he/she is ready. We go beyond just communicating Team-Based Pay, the company vision, and goals with clarity. We make sure the owner is prepared to lead and grow a Team-Based company.
  9. Your pay will not be cut. In fact, your starting pay rate on Team-Based Pay will be just a bit higher than the average hourly rate you currently earn on commission.
  10. Flexibility in work schedules is part of what a team-based salon and its culture are all about. The one thing both owners and employees realize after using the Team-Based Business Model is how the culture rises to a level of teamwork that commission, by design, just can’t achieve. It’s not about sucking the life out of service providers for the sake of making money.

Here’s my challenge to you: Team-Based Pay is more than just a pay method. It’s part of the highly refined Team-Business Model that offers growth opportunities to employees, employers, and the company as a whole.... Read More

Can Your Salon/Spa Go NO TIPPING?

January 9, 2022 | By Neil Ducoff | 3 Comments

Is it time to become a no-tipping salon/spa?

It’s totally understandable if your knee-jerk response is, “NO WAY would I ever eliminate tipping.”

But if you’re still reading, then you’re probably intrigued by the idea of going no tipping. So maybe, just maybe, you’re open enough to learn what it takes to become a no-tipping salon/spa.

FACT: Without question, any salon, spa, barbershop, etc., can go no-tipping — and not blow up your business in the process.

Is tipping “professional”? That’s a decision you must make to define your company’s image and brand. Personally, I feel the industry can do massively better without tips. Why? Because not only has tip reporting and credit card processing become increasingly difficult to manage — it’s become an entitlement. Like a pebble in your shoe, tipping has become an irritation.

So, if you’re tired of dealing with tip reporting, paying taxes on tip income, paying credit card processing fees on tips, and distributing cash tips (that are still taxable income to employees) … it may be time to go no tipping.... Read More

Salon/Spa Compensation: It’s Time to Look Beyond an Individual’s “Numbers”

September 20, 2021 | By Neil Ducoff | No Comments

It’s every owner’s favorite time…performance/wage review time.

Just kidding.

Actually, it’s probably not every owner’s favorite time. That’s why my, “Do you do quarterly performance reviews at least once a year?” question always receives a painful chuckle.

Why IS there so much procrastination, fear, and apprehension over performance/wage reviews? Here’s the short-list of answers we hear from owners:

  • Performance/wage reviews are viewed as “confrontational” both by owners and employees.
  • Employees will want more money than the business can afford to pay.
  • Addressing an employee’s performance and/or behavior issues is uncomfortable.
  • Employees may leave if they’re held accountable or reject the amount of the raise.

FACT ONE: Performance/wage reviews are non-negotiable.  No excuse justifies delay or avoidance.... Read More

The Great Salon/Spa Tipping Debate

March 21, 2021 | By Neil Ducoff | No Comments

Tipping in salons/spas has always been an emotional topic.

When doing business seminars, I would ask attendees, “How many of you feel there is something unprofessional about tipping in salons/spas?” Just about all hands would go up.

Then I would say, “Keep your hand raised if you would eliminate
tipping in your business to be recognized as truly professional.”
Every hand would go down.

Tipping becomes super emotional when it comes to tip processing, proper reporting of tip income, professionalism, and especially, the thought of going no tipping.

There are many owners and employees that believe that tip income should be tax-free. Or that only reporting a small percent of service revenue is good enough. Or that only tips on credit cards should be reported and taxed. Sorry, all tip income is taxable.

And then there are salons/spas that try to eliminate the processing
fees on credit card tips by implementing “no tips on credit cards”
policies. Some even install ATMs. Many say, “Clients don’t complain,” but in those situations, clients really don’t have a choice.... Read More

Team-Based Pay: What It Is — Why It Works

May 13, 2019 | By Neil Ducoff | 1 Comment

The pay method you choose for your salon, spa, medspa or barbershop is one of the most important decisions you can make for your business, as it has a HUGE impact on everyone’s financial well-being, your culture and more.

In this blog post, we’re going to breakdown one of the powerful (yet occasionally misunderstood) salon/spa compensation systems: Team-Based Pay.

And who better to explain it to you than the person who literally invented Team-Based Pay for the beauty industry, Strategies Founder & CEO, Neil Ducoff.

Let’s dig in!

Team-Based Pay (TBP) is not just a pay method

To understand the true power of Team-Based Pay, it’s important to understand that it is much more than just a pay method. It’s a comprehensive business model based on proven systems, best business practices and applied leadership. The Team-Based Pay method creates the foundation that supports all the systems that make Team-Based Pay such an effective business model.... Read More

How to Adjust to Increases in Minimum Wage

April 1, 2019 | By Neil Ducoff | 1 Comment

The new big question salon/spa owners are asking is, “How will we be able to afford these new minimum wage laws?”

Well, like any other mandated increase in the cost of doing business, you figure it out. You make adjustments. You find a way to make it work.

The fact is, paying minimum wage is the law. If attendance is mandatory, employees must be paid. (Huddles, meetings, training, etc.) That’s only fair and honest.

And paying commission doesn’t mean a salon/spa isn’t required to pay minimum wage.

The formula is simple: Total earnings per week divided by hours worked = Average Hourly Rate. Note: Hours worked means all hours the employee is at work — not just time servicing clients.

If the Average Hourly Rate for that week is less than the Federal or State minimum wage, the employee is due additional compensation.

Some states allow tips to be averaged in. Make sure you know and understand the minimum wage laws in your state. Don’t assume anything.... Read More

A Crash Course on Salon & Spa Owner Pay

February 18, 2019 | By Neil Ducoff | 5 Comments

As the owner of a salon/spa, managing employee payroll is always a top priority.

But what about how you, the salon/spa owner, should pay yourself?

As an owner, there are many considerations, and many differences of opinion, on how an owner should be paid.

The following questions are just the tip of the iceberg on owner pay:

  • How should you get paid and how much?
  • If the business is profitable, how much of that should you take?
  • What if you’re also a busy service provider?
  • What if you’re a full-time leader/manager?
  • What if you have a partner(s)?

One thing we know for sure is that owners don’t get to keep all the money that’s left over after service providers are paid.

To bring some clarity to owner’s pay, or to benchmark how you currently pay yourself, I offer you these No-Compromise Leadership strategies:

  • The sacrificial paycheck: The stark reality of being the business owner is that when cash flow is tight, owner’s must sacrifice their paychecks so employees can get theirs. In these stressful times, some owners continue to take paychecks but not cash them. The problem with this approach is that withholding tax on those paychecks still needs to be paid on time. The other problem, depending on the length and severity of the cash crisis, is that all, or some, of those uncashed paychecks may never be cashable. KEY: The best strategy, and unfortunately the most painful, is to not take a paycheck until cash flow recovers. And the only way cash flow recovers is to drive revenue and lock down spending with a cash-flow budget.
  • 10% of Total Income: This is a very subjective benchmark for owner’s pay. First, it is based on an owner whose full-time responsibility is the leadership of the company, not generating revenue servicing clients. Second, it is based on the fiscal and budgetary expense management of the company. Simply put, the 10% is in no way an “owner’s commission rate” on total company income. Quite the contrary. It is a salary that is budgeted into the company’s monthly and annual cash-flow projection. KEY: The 10% is only sustainable if monthly sales projections are met and expenses are strictly managed. So, if an owner wants to make a $100,000 annual salary, without servicing clients, the salon/spa must be doing at least $1 million in total revenue.
  • Service provider owners: This is where the differences of opinion are varied and wide. When most service provider owners open their salon/spa, they need to be revenue producers. As the company grows, the challenge then becomes balancing their passion for the work and revenue generating with leadership responsibilities. When an owner bases their compensation on a commission rate on revenue their hands generate, they can easily fall into the “bought yourself a job” scenario. My recommendation is for service provider owners to budget themselves a salary that is allocated based on time devoted to leadership/administration responsibilities and time servicing clients. Leadership/administration pay goes under “Officer’s Salary” and service time goes under “Cost of Sales” in Service Payroll. Owners pay based on time allocated to work responsibilities rather than “commission” just makes sense and reduces the chance that leadership responsibilities get shortchanged for the sake of revenue. KEY THOUGHT: If you or your company needs the revenue your hands generate to survive, you have a major problem. You’re stuck. Your company is free floating.
  • Profit, cash reserves and distributions: Profit is often described as the owner’s “second paycheck.” Yeah, wouldn’t that be nice. But that thinking is an invitation to a cash crisis. Why? Because profit isn’t cash. (Read this blog post learn why.) Cash reserves equal to three to four months operating expenses is not only prudent, it’s smart business planning. KEY: When all the bills are paid, debt principle is current and asset purchases are planned and managed — and cash reserves are sufficient — you can take an owner’s distribution. How much depends on the factors I just stated. And yes, distributions are taxable income. The only exception is at year end when corporate tax returns are completed, taxes have been paid on profit, and disbursable cash after taxes is available. Your accountant should be able to provide that amount.
  • Owner bonuses: If, under your leadership, your company is growing, hitting goals and creating profit, you can take a bonus. It can be quarterly, year-end, or based on hitting certain growth targets. KEY: Bonus amounts must be manageable, budgeted and never compromise prudent cash reserves.
  • Corporate partnerships: I put the word “corporate” in there because every business entity should be incorporated. Corporate entities (LLC, Sub S or C-Corp), often referred to as the “corporate shield,” legally separate personal assets from the company. When it comes to partnerships, clarity and fairness must prevail. Again, I don’t like that service provider owners work on commission. KEY: Partners should receive a salary based on clearly defined responsibilities because the moment one partner perceives that he or she is carrying more of the load, the partnership will sour. Distributions are made based on the percentage of stock ownership and in accordance with the criteria stated in the previous bullet on distributions.
  • Zero profit strategies are dumb: I have to throw this one in here because it is, like I said, dumb. There are accountants that recommend driving profit to zero, or a loss, to avoid income tax. True, part of an accountant’s job is to recommend strategies that minimize income tax. But driving profit to zero or negative is foolish and compromises the financial integrity of the company. KEY: You can’t build cash reserves without creating profit. You can’t create a financially sustainable company with zero profit. You can’t finance growth with financials and tax returns that show a history of zero profit and losses. If your accountant recommends “zero profit” — get a new accountant.

Here’s my challenge to you: When it comes to how you get paid, think about the bigger picture of business ownership and growth.... Read More

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