Chair Rental vs. Direct Employee. Which is best?
Salon owners face many tough decisions from choosing the right decor to finding the perfect products. One of the toughest and most important decisions is what to do with that empty chair.
To rent or not to rent
It’s not just new salon owners struggling with this decision. Established salon owners who have lost a trusted employee can also have sleepless nights trying to decide what to do with that empty chair.
Get the right stylist and you can enjoy watching your profits and reputation increase. Get the wrong stylist and you might lose valued customers or even other employees.
Regardless of whether a salon owner decides to rent the chair to a self-employed person or hire an employee, there will always be an element of risk involved.
Risky Business
So is hiring an employee or renting a chair more risky?
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Many salon owners have a gut feeling that if they rent out a chair, they’ll be giving away some control over their business. If you really want to lose control of your business, hire an unmotivated stylist. The
- Behaviours of an unmotivated stylist
- Arriving late for shifts
- Not keeping the station tidy
- Speaking inappropriately to customers
- Not dressing appropriately
- Too much time off sick (especially on Monday mornings)
- Taking a lazy approach to work
- Keeping customers waiting unnecessarily
- Not listening to customers’ requests
- Taking long lunch breaks
- Poor quality work
- Upsetting other employees
biggest risk to any salon owner is an unmotivated and unmanageable stylist.
There is always a risk that you might get unlucky and bring a negative person into your salon, but who is more likely to be highly motivated to succeed, an employee or a self-employed stylist?
If an employee loses customers, they will still get paid. If a self-employed stylist renting a chair doesn’t take pride in their work, they will lose customers. Without customers they won’t be able to rent the chair or remain self-employed.
Employee related costs and responsibilities
As an employer, you’re responsible for paying National Insurance, PAYE, sick pay, holiday pay and maternity cover if required. You still have to cover all of your overheads, too.
All of this extra expense means your employee’s take home might not be enough to really inspire them. This can be a major factor in your employee’s motivation and how long they will continue working at your salon.
You also have to ensure that you follow employment law. For example, when hiring, you must be aware of equal opportunities. When firing, you must ensure you have followed disciplinary procedures that are in accordance with the law. Get it wrong, and you could face a lawsuit that could close you down for good.
Two heads are better than one
If they take time off, you can stop worrying about that empty chair, because you have already collected their rent. This stylist may work differently, but as long as they keep their customers happy, it’s good for the reputation of your salon.
Having a professional colleague working beside you can be fun and help keep you passionate about driving your business forward.
Employment contract and HR documentation vs. Chair rental agreement
Whether you rent a chair or hire an employee, it can be an enormous risk to your business if you don’t plan and prepare the correct documentation.
Hiring an employee – What’s needed?
If you do decide to hire an employee, a well written employment contract is a must.
Make sure your expectations are clearly defined in writing. Have planned disciplinary procedures prepared in case you do need to fire an employee. Be compliant with equal opportunities. Keep the Inland Revenue happy. Make sure you get payroll right. Do your homework. As an employer, it’s your responsibility to follow employment law.
Renting a chair to a self-employed person – What’s needed?
To rent a chair, you simply need a chair rental agreement. We have prepared a legally binding chair rental agreement that was drawn up specifically for salon owners.
Buy it. Sign it. Collect your rent.
I’m working with a client who wishes to start her own salon. She plans to use Direct Employee
as opposed to Chair Rental. I understand that when a direct employee stylist receives a tip, according to the Internal Revenue Service, it is income for the employer (salon owner) and that such “phantom revenue” must be taxed as income to the owner. In effect, the owner is taxed on income they never receive. Is there a commonly used method in the industry for the receiving of tips by Direct Employee stylists? For example, are all tips placed in a common account or “tip bowl” that is later divided among the stylists and owner? The Chair Rental agreement is the dominant system in my area, to the point that I cannot find any salons that use the “Direct Employee” arrangement.
Hi there
Thank you for your question. Unfortunately there are differing rules and regulations dependent on which country, county or state your clients business is located.
Can you please let me know where exactly in the world your client is?
Thanks - Mick
I have a rented chair at my salon, but with no formal contract set up the stylist reduces the rent paid per week when she chooses to take time off. Is she able to do this legally? I need to know before a contract can be drawn up in future.
Thanks
Hi Thank you for your question.
Yes she is legally allowed to do this. Because you have no contract your chair renter has no obligation to you and can make up her own rules as she wishes.
Hope this helps - Mick