Money Matters

Making Booth Rental Work

In a special focus group, NAILS talked to booth renters and salon owners about how well booth rental works in their salons and how to head off conflict over setting prices, maintaining quality standards, and paying for advertising.

The salon owner/nail technician relationship in a booth rental situation resembles the husband/wife relationship: it’s a constant struggle between control and compromise. Nail technicians struggle to defend their independence; salon owners try to create a cohesive workplace.

Our focus group discussion revealed that, although the IRS has very strict guidelines defining exactly what a salon owner is and isn’t allowed to do, salons do not follow these guidelines with any consistency. The goal of our focus group was not to determine whether laws are being broken, but to discover how salon professionals make booth rental work. How does a salon owner maintain service and performance standards if she isn’t legally allowed to tell her technicians how to do nails? Who does the IRS go after if taxes are not paid? How are prices determined in a salon setting where everyone is an independent businessperson? How are sanitation procedures enforced?

Publisher’s note: In an effort to better understand how booth rental really works in the nail industry, NAILS invited a group of independent contractors and salon owners to discuss booth rental issues openly at a focus group in Detroit, Mich. NAILS editor Cyndy Drummey selected the participants and moderated the discussion.

NAILS Magazine wishes to thank OPI Products (North Hollywood, Calif.), who underwrote the cost of this research forum. Although OPI Products made this project possible, the company did not choose the participants, attend the meeting, or write this article.

 

We invited the group participants to share with us specifies about their salon operation. Because we wanted them to feel comfortable openly discussing such issues as salon management, finances, and working relationships, we agreed not to use their names,

VIEWPOINT: BOOTH RENTER

Clearly, booth rental provides a certain freedom available only to those who run their own business. An independent contractor (or booth renter) can set her own hours and follow her own rules. But with freedom comes responsibility, and a booth renter is responsible for paying all her own business expenses, including advertising, insurance, and often, phone service. Our focus group technicians all agreed that the indisputable advantages of booth rental are freedom and terrific income potential.

Said one technician, “With booth rental you can triple or quadruple what you’d earn with commission. I started out a year ago as a booth renter and I paid all my own business costs. Within three months, I was earning triple what I earned with a 50/50 commission split.”

Said another technician, “Most salons charge about $100 a week for rent. I make that before lunchtime! The rest of the week is pure profit.”

The technicians noted that booth rental can either provide the means to unlimited income or it can lead to an unambitious attitude. “There’s a personality change when you go to booth rental,” said one booth renter. “Booth renters say, ‘You can’t tell me what to do.’ They don’t want to work very much; they use their open time to play.”

VIEWPOINT: SALON OWNER

The salon owners who rent out space agreed that the advantages to them of booth rental is easy accounting (no need to worry if a technician is giving you your fair share of her income) and financial savings (most agree that the cost of operating as an employer is higher because of employment taxes and insurance).

However, one salon owner whose salon is currently staffed only by booth renters said she will soon convert to a regular employer/employee operation. She said she lacks control over the quality of service in her salon under her present system and is frustrated with her staff’s unprofessional attitude and lack of conscientiousness. “I take care of everybody I work with and I feel I’ve somehow handicapped my people. In reality, they’re already employees; I just don’t provide products. I feel like they have no commitment, even though I’m doing so much to help their business. I spent $7,000 on advertising over six months.”

Although this salon owner has calculated that converting to an employer/employee operation will cost her an additional $2,500 a year in taxes and other fees, she feels it’s worth it if it means she will regain control of her salon.

“Technicians come and go so much that we actually have to turn away walk-in business. One day we turned away four clients because no one was there to service them. If one of my technicians has an open spot in her book, rather than trying to drum up business, she leaves the salon and goes shopping or does errands. I can’t run a business with absentee technicians.”

SETTING HOUSE RULES

The IRS makes it very clear that an independent contractor is a self employed businessperson not subject to the rules and regulations (or whims) of an employer. We asked our group members how a salon can fun smoothly with so many independent people looking out for their own interests.

Many salon owners do enforce a few basic house rules that all staff members – whether independent contractors or employees – must abide by. Although some of those owners may be walking a fine line with regard to the IRS, they have found that rules are necessary for orderly business.

At one salon, the owner requires that technicians keep her apprised of their work schedules. She wants to know how to reach them if they’re not in the salon and what hours she can count on them working. Although individual technicians don’t have keys, the owner will arrange to let in anyone who wants to service clients early or late.

At another salon, work schedules have become a source of conflict. “My best technician is a former salon owner. I have allowed her to come and go as she pleases, but it’s had an effect on the other technicians,” she says. “They saw the freedom she had and wanted it themselves. But I can’t have everyone working their own private schedules.”

WHO SETS PRICES?

If ever there was an area of booth rental that’s ripe for chaos, it’s service pricing. How can you operate a business with individuals setting their own prices for the same services? How do you respond to clients who call asking for prices? What do you tell walk-ins? How can you print a price list?

“We have regular staff meetings,” said a nail technician in the group, “and we agree to keep to our prices within a few dollars of each other.” Another technician said that at her salon all booth renters agree to use the salon’s prices.

All of our group participants explained that pricing, among other issues, is addressed at regular salon meetings. They all agreed that open, ongoing communication is critical to maintaining productive working relationships.

MAINTAINING STANDARDS

Paradoxically, a salon owner cannot require independent contractors to follow certain rules about how things are done, yet the owner is responsible for ensuring that standards are maintained. Especially in the area of sanitation and disinfection, owner and independent contractor must be in accord on salon requirements.

Our group concluded that the best way to enforce good sanitation practices is to set an example instead of rules. Explains one nail technician: “Clients see other techs disinfecting properly, and if you’re not doing the same, clients look at you like you’re not as professional.

“When I get a new client, I ask my 20 questions. I ask about allergies or any problems they’ve had before with product reaction. I show the client the products I’m going to use. I always get up and wash my hands if I sneeze. They’re impressed. Clients are much more aware than they used to be.”

CLIENTELE BUILDING

She may be rare, but one of our salon owners explained her role this way: “I’ve always felt that my number one job as an owner is to get clients for everyone in my salon.” Clientele building is handled in several ways by our group participants. One technician does her own advertising, although the salon owner pays for business cards.

All the booth renters in our group said they keep their own client card files and do occasional promotional mailings of their own to bring in new clients. Nevertheless, all relied primarily on word of mouth to expand their business.

THE ONLY OPTION?

Are good nail technicians so difficult to find that salon owners must sacrifice their own business goals to accommodate a qualified worker? Are the exceptional nail technicians in such demand that a salon owner must acquiesce to all their demands?

Is the earning potential of an employee nail technician so inferior to that of booth renters that really good nail technicians will only consider working in a booth-rental  situation? The reaction from our group was mixed. Although our booth-renting technicians said that booth rental was the only way to earn big money, they agreed that the salon environment an owner creates plays a key role in their professional contentment.

Said an owner who requires a percentage of income from her booth renters instead of a flat rental, “When I’m recruiting new technicians, I promote the professionalism of our salon. I offer lots of benefits. I once hired a very good tech who at first asked for a high percentage. But she was so happy with the salon that she agreed to a lesser percentage for the chance to work in a salon with a pleasant atmosphere.”

“New techs are afraid of the work and unsure how to build a clientele. Salon owners can do a lot by creating a safe environment and helping them get clients.”

CONVERTING FROM BOOTH RENTAL

The salon owner in our group who had decided to convert her salon from booth rental to employer/employee felt that her efforts to keep her staff happy had cost her the control she needs to run her business effectively. “My staff saw me more as an employer than I saw myself. They wanted me to do all the work for them, but they wanted the freedom to work when they wanted and to make their own rules.

“I may lose one or two of my staff by changing, but I think that the rest will be happy with the new arrangement. I can offer benefits so they stay committed and want to work for me. I can set up profit sharing, give them a percentage for day care, provide health insurance. These things are things that create job security,” she said.

Can the salon owner and booth renter both earn a good living by following all the rules and paying all the taxes, or is going over to an employer/employee situation a losing proposition for both?

“I’ve had many friends tell me I’m crazy to change to an employer/employee system,” said the salon owner who is converting. “They say that doing it the right way means you can’t make any money, but I’m figuring the numbers. You do goal-setting, you match worker productivity to worker benefits, and you have to make it a win/win situation.  It’s the hard way to do it but it’s the best way. I can’t believe this industry is going to remain the same when every other industry in the world is changing its ways. The IRS went after waiters and waitresses, and sooner or later they’ll come after the nail techs.”

PLAYING ROULETTE WITH THE IRS

The nail technicians in our group said they believe only a very few nail technicians report their full income to the IRS. Said one, “When a tech is on her own taking in her own cash, she is not reporting the income.” All nodded in agreement.

I asked the group whether nail technicians seem worried that the nail Industry might be targeted by the IRS. Surprisingly, they indicated a sense of invulnerability.

“It’s hard to prove that people are pocketing the money.” said one technician.

A salon owner said she thought owners would be the ones to take the heat first. “The IRS is putting the heat on salon owners, who will put the heat on techs. But the sense among nail technicians is that they will not get caught.”

One owner said the buzz among salon owners is that the IRS is currently conducting random checks and will soon concentrate on the industry. She is worried that she may be too late in converting from booth rental: “I want my salon to live a long and prosperous life. If I don’t start making goals and planning the big picture, then I won’t grow.”

GETTING IT IN WRITING

Despite the acknowledged lack of control our group’s salon owners said they felt, none require employment contracts of their workers.

“I feel bad about asking technicians to sign a contract. A client of mine who is a lawyer gave me a form and tried to get me to use it.

The contract outlines where a technician can work if she leaves the salon. But I’ve heard that contracts won’t hold up in court,” a salon owner said.

None of the technicians have contracts, and in fact, none work at a salon where there are written rules and regulations. Said one technician, “The only agreement I have is that rent is due on the first of the month and I’m supposed to tell the owner when I’m working.”

Salon owners who foster teamwork and create a productive environment should be able to maintain a talented and committed team and see their salon profit – whether staff members are independent contractors or employees. (Interestingly, the salon owner in our group who offered the best benefits was approached after the meeting by several of the booth renters about possible employment.)

The key to making booth rental work is open communication. This focus group showed the participants the value of such communication: Few of the participants had ever sat with a group of fellow professionals and discussed the challenges they face in their work.

Although booth rental has its advantages and disadvantages, its underlying challenge is one that people in every profession face. People want control over their lives and they want more say-so in their careers. Booth rental gives nail technicians the opportunity to be their own boss. For the salon owner, if she is to ensure that the work produced in her salon is high quality and that a high level of professionalism is maintained, she has to be able to communicate her salon’s mission and objectives well enough at the time of hire to ensure that she hires professionals who share her values.

 

Keywords:   booth rental     compensation systems  



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