Money Matters

The Compensation Dilemma

How can I earn more? Which system is best?

In our ever-changing, developing industry, methods of employee compensation are as diverse and many as the ways to extend a fingernail. Of the salon owners we spoke to, most had come to their current system as a matter of trial and error. Many technicians we interviewed turned our questions back on us and asked how their colleagues in other parts of the country handled the compensation dilemma. There are no right or wrong ways, although in some states there are illegal ways. But whether you rent a booth, earn a commission, or are guaranteed a salary, you can, if you’re an employee, increase your income. And, if you’re a salon owner, you can contain personnel costs and retain valued employees.

There seem to be few salon owners using a straight salary method to compensate their technicians. While this method is by far the easiest to figure mathematically, it has plenty of admitted disadvantages. Owners complain that a set salary is an ineffective motivator for technicians to do their best (or most) work. Many business owners are not comfortable with the notion of paying employees regardless of whether they bring in business.

Technicians complain that being paid a straight salary limits their opportunities to increase their income. Technicians and salon owners often have differing opinions about what constitutes reasonable hours and duties for technicians who are being paid “just to be at the salon.”

The straight salary scheme is still probably the most sensible method for compensating non-income-producing employees such as the receptionist, cleaning person or new trainees. Trainees usually work through a probationary period then move to another payment formula.

Northern California salon owner Paula Gilmore starts technicians out with a set hourly rate. From there they progress to a 50/50 commission structure, as long as the commission is more than the hourly rate. Her technicians are regular employees who earn a 50/50 commission (or the greater of a guaranteed base salary) and even enjoy a share of the profits. Employees who have been with the salon for six months are eligible to share in 20 percent of the salon’s profits. Gilmore says her turnover rate is very low, her technicians are very loyal, and there is a tremendous team spirit in the salon. New Jersey salon owner Penny Axberg pays starting technicians a straight salary. Once they are able to bring in business equal to double their salary, they earn 30 percent commission on everything over their doubled salary.

The opposite of the straight salary method is the straight percentage commission. This method works well for highly motivated people. Using this system, employees earn a percentage of their gross earnings. They make no base salary and are not guaranteed any earnings.

Sometimes, a salon owner will provide a “draw,” which is an agreed-upon amount against which the employee will be paid. The employee is guaranteed a certain amount monthly, but she must earn that amount. For example, let’s say an employee has a monthly draw of $1000. One month she makes $500, but the owner gives her a draw check for $1000. She now “owes” the salon $500; so the following month, she makes $1500 but only draws $1000.

There is yet another variation on this method, in which the employee earns the greater of the straight percentage or the guaranteed base. This way, an operator is guaranteed a certain amount every pay period. For example, if she is guaranteed $150 per week against 45 percent of her gross, and her gross is $300, she would take home $150 (because 45 percent of $300 is $135, and her guarantee of $150 is greater).

There are several other variations on the percentage theme. A dual percentage system allows a technician to earn different percentages for different services or types of work. For example, she may earn 50 percent of her gross on extensions or sculptured nails and 40 percent on natural manicures.

A sliding percentage allows a highly motivated technician to earn a great deal of money. As her gross earnings increase, so does her percentage of the gross. For example, she may earn 45 percent of the first $100 earned, 50 percent of the second $100, 52 percent of the third $100, and 55 percent of everything over that.

Some owners will require a technician to pay for her own supplies from her commission; others provide supplies as part of the compensation package.

BOOTH RENTAL

The both rental method of compensation, besides being controversial, has inherent problems for the salon owner. When a technician rents a “booth” from a salon, she pays either a flat flee or a percentage of her gross.

A frustration with the booth rental system, from the manager’s point of view, is the need to collect the rent. There are also questions of liability and insurance – who pays the business insurance on the booth and who is responsible in the event of an accident that befalls a client of the booth owner? As well, some owners find the system lacking because renters may be less loyal to the salon, may not maintain the atmosphere of desired professionalism, or may keep irregular hours.

There are benefits to booth rental, however, in that there is less paperwork required of the salon owner. Peggi Hughes, a salon owner in Bakersfied, California, finds that the booth rental system works very well for her. Her technicians rent space for $70 a week, and they make their own schedules. Sharon Mode of Thousand Oaks, California, based her booth rental fee of $70 a week on the going rate for salons in her area ($65 to $85). She tried a commission set-up but she found that her technicians were not sufficiently motivated and did not bring in enough business to justify that system.

There is a group of salon owners in California called Cosmenet that would like to see booth rental outlawed in their state. Member Paula Gilmore says that with booth rental, the quality of service isn’t comparable with that in a structured organization.

NON-MONETARY BENEFITS

Money is obviously a prime motivator for employees. A technician will seek out an owner and a shop that offers her a chance to maximize her income. But there are other benefits that are all part of the package you offer a prospective technician if you’re a salon owner, or that you look for in a salon if you’re a technician.

Way up on the list of employee desires is health insurance. It is not only expensive for an individual to insure herself, it is often difficult to get on choice policies. Unfortunately, few salons are able to offer their nail technicians health insurance. Trish Phelan, a New Jersey nail technician and her co-workers solved this problem by banding together and purchasing a group health plan on their own. The plan is independent of the salon, but they are able to enjoy the benefits of a group plan by joining together.

A salon owner whose relationship with her technicians is one of employee/employer (rather than independent contractor) must, by law, offer certain “benefits”: unemployment insurance, worker’s compensation insurance, withholding taxes, and a year-end W-2 (employee earnings statement).

MONEY ISN’T EVERYTHING

While benefits that you would otherwise have to pay for yourself (like insurance, parking supplies) are highly desirable, there are other benefits of which a price cannot be attached. If you are a technician considering a salon, don’t neglect these considerations; if you’re an owner, don’t forget to emphasize these benefits in the employee interview.

While many salons are not able to offer paid vacations to employees, some do offer technicians their base salary for a week’s vacation. Other salon owners try to stay flexible with time off; some even allow technicians to make their own schedules.

Anything a salon offers a technician to help her further her professional knowledge or technique is a valuable benefit. Look for salon owners who are willing not only to allow you time off for trade shows and competitions, but who will pay your entry fees or traveling costs. Also, some owners will help you promote your competition wins by displaying your trophies or certificates, announcing your victory with fliers or some other form of advertising, or sending a press release to local papers. On-the-job training is a priceless benefit. Many owners are more than happy to share their knowledge and expertise with their technicians. Good training not only makes you a more marketable technician to salons, but makes you more valuable to your customers. Clients rely on the knowledge of their technicians, and the more you know about your field, the more confidence you will inspire in your clients.

And certainly there are non-tangibles that can make doing nails more than just a job. Things like the atmosphere at the salon contribute to a sense of belonging and a feeling of job satisfaction. Do you enjoy your co-workers? Is the salon in a nice area of town or convenient to places you need to go? Is your commute short? Does the owner provide high-quality products in a high-quality setting?

Do you have your own table or do you share? Is the salon’s reputation good? Working for a well established and highly regarded business enhances your reputation as well. Getting your nails or hair done free at the salon is another terrific benefit.

GIVE YOURSELF A RAISE

What makes the compensating dilemma a dilemma is deciding which method to use in your salon as well as figuring ways to increase income. Very few salon owners we spoke to offer employees opportunities for a formal raise in the classic business sense, where once a year employee performance is reviewed and a raise granted (or declined). But there are ways you can increase your income even if you believe you are currently working at maximum capacity.

Paul Gilmore reviews her technician monthly. She meets with technicians individually and discusses their earning goals, how they can increase their productivity, and what skills they would like to learn or improve. Key to this review, says Gilmor, is that she asks technicians how the salon can help them achieve their goals. Also, every morning the staff takes three minutes to review the day’s client cards and set a daily earning goal.

To increase your own productivity – and thereby, your earnings – your first plan of attack is to fill your appointment book if you haven’t already. There are many ways to increase your business – advertising, promotions, sales – but nothing will do more for your long-term success than simply being great at what you do. Word-of-mouth referrals are the most effective advertisements (not to mention the cheapest), and those clients referred are often the most loyal. You must be constantly perfecting your techniques, increasing your knowledge of nail technology and chemistry, and bettering your sales skills. When you perfect your techniques and shave time from certain services you will be able to service more clients a day and earn more income.

The successful nail technician of the future will be a skilled salesperson. If your boss offers a commission or incentive on retail sales, the sky is the limit to what you can earn by suggesting home nail care products to your clients. You need to make clients aware of the benefits of home care of their nails as well as the superiority of professional products.

Incentives for retail programs are on the rise and have tremendous potential to help you earn more money. Most of the technicians and owners we spoke to pay commission of 10 percent to 20 percent on retail sales by technicians.

If you’re a salon owner, you need to evaluate not only what works best for you in terms of employee management, paperwork, and your own earning potential, but what will motivate your technicians to earn the most money of themselves (and thus for you). What can you provide a technician, in the way intangible and intangible benefits, to keep her and her clients with your salon? And if you’re a technician, how can you improve your service so that you see more customers daily, do fewer repairs and re-dos, and develop more referrals? Also, you must learn the business of retail so clients become loyal to professional brands and professional service. It isn’t every profession that lets you write your own paycheck, after all.

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