Some people insist that booth rental is destroying our industry; others maintain booth rental is keeping our industry economically viable. No one sits on the fence on this issue. But no matter which side of the fence you choose, what used to be a trend has turned into a reality.
Editor’s Note. While booth rental is growing in popularity with nail technicians and salon owners alike, the issue of booth rental is also becoming more controversial for the industry. To help our readers better understand booth rental issues, this month NAILS introduces a quarterly column on booth rental by salon consultant Ken Cassidy.
Booth renting is the most talked-about, controversial subject in the beauty industry today. The topic is being addressed by the CEO of every major manufacturing and distributing company retail sales representative, salon owner, nail technician, and hairstylist.
Some people insist that booth rental is destroying our industry; others maintain booth rental is keeping our industry economically viable. No one sits on the fence on this issue. But no matter which side of the fence you choose, what used to be a trend has turned into a reality. With the percentage of booth rental salons increasing daily (as high as 90% in some states), no one can deny it is a viable way of doing business. And from a survival perspective, booth renting has become a necessary way of doing business.
Booth renting is not a new concept. It has been around for decades, but it achieved its real strength during the Reagan administration, a time when businesses were becoming more entrepreneurial. It was during this time the term independent contractor became more readily used within the business community.
What happened in the salon industry during the eighties was that many middle-income professionals, like successful salon professionals, found themselves over-taxed and over-regulated by every city, county, state, and federal government agency (I define a middle-income salon as having 7 to 17 employees). Many owners felt they could no longer pay the 60%+ commissions stylists demanded (and got) during the seventies and early eighties. To offset high commissions, salon owners tried charging employees a product and service fee so they could recoup some their expenses. Many salon employees felt they were being asked to bear the rising cost of living. For their part, salon owners were inundated with the paperwork required to track inventory. We began to see more stylists and technicians doing business out of their homes, and eventually the booth rental concept became an option to help bring back some of these “kitchen manicurists.”
While federal interpretation classifies independent contractors as contract laborers, most state cosmetology boards classify any person operating as an independent owner within a salon as a booth renter. The difference between federal and state standards is clear:
The IRS states definitively that a contract labour person does not work at any one place on a regular basis or with regularly scheduled hours.
Most states define a booth renter as one who works in somewhat the same location, on somewhat the same schedule, with somewhat the same hours, even though a booth renter may work at more than one salon or location.
Booth rental really came into its own as an option when the current recession hit and salon owners couldn’t even afford to pay the nail technician the percentage she needed to make a decent living and still make some return on her own investment. So the salon owner gave up some of the responsibility and control of her business to her operators. From a legal standpoint, the salon owner and booth renter are equally responsible for the business. Control/responsibility are the key issues in determining a workers status. What makes the classification critical is that it affects your tax status.
In California, a bill to regulate booth rental in salons is currently before the state legislature. If this bill passes, everyone involved will be governed by the same set of rules. As responsible salon owners, we should welcome this long- needed support in our industry. Other states are drafting similar legislation, and other industries are following suit. Very few state cosmetology boards have any guidelines regarding booth rental.
Of the thousands of salon owners, nail technicians, and stylists who have attended my seminars on booth renting, I can honestly say the vast majority are professionals who want to run their business with professional integrity and without interference from state and federal governments. Unfortunately, there are still too many owners and contractors trying to avoid paying taxes, whether they are considered employees or booth renters.
Since we all want our industry to survive, we need to work together to support ourselves, our peers, our employees, and our booth renters. Remember: booth renters are just as responsible as salon owners in the eyes of the government. It is in your best interest to be as professional as possible.
Here are a few simple guidelines to follow, whether you’re just getting started or are already involved in booth renting.
1. Put it in writing. It is imperative that a contract be written that describes the working relationship between the salon owner/landlord and technician/booth renter. Be sure to include:
- lime period of contract
- Rental amount
- Number/location of space/table you are renting
- Identification of anyone else using the space/table
- List of equipment included with space/table
- Whether a key is provided to the booth renter
- Amount and kind of insurance required
- Reception services fee
- Security deposit
- Agreement regarding retail products
- Maintenance agreement
Have your attorney review the document before you sign it.
2. Set up an adequate records system. Set up a separate checking account and a system to keep track of supplies, estimate your quarterly taxes, etc. Get professional assistance if you need it.
3. Obtain a business license. Most cities require independent contractors to have a license to operate.
4. Obtain appropriate insurance. Protect yourself and your clients.
5. Professionally design your business card. Be sure to include the name, address, and phone number of the salon, but your name should be the largest item on the card. This maintains your independence and clearly indicates you are not an employee of the salon. The IRS likes this!
6. Maintain a log book. Record each transaction each day, including appointments, phone numbers, and services provided and amount charged. Be sure to include tips. The IRS expects 8%-15% of your income to be tips.
Booth renting is here to stay. Our best opportunities are to continue to conduct ourselves professionally and to work with our state cosmetology boards and legislators to assist us in maintaining the highest standards for ourselves and everyone in the industry. Upcoming articles will explore in depth specific booth renting issues.