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.

The bold and the brave go no-tipping

Over my 40+ years of coaching salons/spas, I worked with a good
number of owners that went no tipping. The one overwhelming reason is that tipping is viewed as unprofessional.

The three absolute critical components of a successful no-tipping policy are leadership, communication and culture. Even with the best intentions, without solid leadership, open communication, and a well-defined culture, a no-tipping transition can be terribly disruptive. And if executed poorly, it can and will cause turnover.

Salons/spas that succeed with no-tipping must totally revamp their
pricing and compensation to maintain fairness. Why? Because asking service providers to give up substantial tip income for god, country and professionalism is a BIG ASK. Opening a new salon/spa with no-tipping is a hell of a lot easier, but still requires leadership, communication and building an ideal culture.

Like it or not, tipping presents a number of challenges.

  1. Is tipping “professional”? That’s for owners and service providers to decide. Personally, I feel the industry can do better without tips, but as previously stated, there are inherent hurdles that most owners are not prepared to jump over.
  2. Service pricing and compensation must be completely rethought. Tips cannot be eliminated without doing something to offset the loss of tip income. Service prices must be recalculated. More importantly, the new pricing shouldn’t alienate clients.
  3. Communicating no tipping to clients: Scripting is crucial, so clients understand that the service price reflects what they were paying when tipping separately. Communication and scripting are the only effective ways to help clients get comfortable with no tipping. And they get used to it quickly.
  4. IRS law states, “Tips are income earned at work and therefore taxable.” How about the industry wake up and fix the massive unreported income problem that exposes owners and employees to back taxes and penalties? Too many owners and employees still don’t understand the nightmare that will happen should they be audited. There are countless stories of massive tax bills and penalties.
  5. Tips on credit cards create a paper trail (re-read #4). Too many owners complain about processing fees to the point of “no tips on credit cards.” Some install ATMs — that still creates a paper trial, requires ongoing maintenance — and in no way eliminates the proper reporting of REAL tip income. A company like Tippy can eliminate CC fees. Check out www.meettippy.com.

Here’s my challenge to you: There is nothing straightforward about tipping in salons and spas.

The legal tip income reporting problem must be addressed.

The industry’s understanding of “charging what you’re worth” and how to properly price services to cover expenses and create profit needs to be addressed.

No-tipping salons/spas stand out from the crowd. They make a statement about professionalism with a BIG exclamation mark.

Not until the industry as a whole pulls the curtain back on the fundamental challenges of tipping in salons/spas can it be ready for an honest discussion on whether tipping is professional or not. It will not be an easy discussion — which is why it hasn’t happened.

🗓 Schedule a free 60-minute strategy session to start building your Team-Based salon, spa or medspa: Click Here!

Categories: Compensation , Profitability , Staff Retention , Team-Based Pay

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