In our last article we took a stroll down memory lane looking at how our industry arrived at where it is today in the business world.
Now, let’s look at why all business practices within the beauty and barbering industry lack three very important factors to be successful. They are, very simply, the lack of a legal structure, the lack of a profitable structure and the lack of a management structure. Lacking any one of these structures is enough to keep a business from being as successful
(profitable) as it has the legal right to be. Worse case scenario, you go out of business.
The methods we use to conduct business we call “working options”. When it comes to paying taxes there are three working options or categories from which we must choose - employee/employer, booth renter and independent contractor. Over 60% of workers in our industry have placed themselves, or their business, in the wrong tax classification and, in so doing, generated serious consequences.
The employee/employer relationship is salary based, hourly based, commission based or some combination thereof. Most businesses understand the tax responsibilities in this category but lack the protection to insure their success legally, financially or from a management structure. Contact us for more information on these issues.
The same thing is true when it comes to booth renting, with one exception - most owners/landlords and the booth renters themselves, do not know their tax responsibilities. Or, if they do, they don’t practice them and lack the legal structure necessary to protect their businesses. That is why 99% of all practicing this concept of booth renting could not pass an audit today by their own state, the IRS or a judge.
The last working option category is contract labor. This is a completely different category tax-wise, and the IRS says only 0.5 % of all people practicing within the beauty and barbering industry qualifies for this classification. Therefore, pretty much all those practicing within our industry fall into only 2 tax categories - employee or booth renter, period.
In future articles, we will be covering all three of these working options from the legal, profitable and management points of view. We’ll provide guidance and direction to help you become more successful. The trend towards combinations of business practices looks to be a lasting part of our industry, especially if you, as an owner, want to continue to grow your businesses.
For now, let’s examine the independent contractor classification. Why is it that 99.5 % of all beauty and barbering industry related personnel do not qualify for this tax category according to the IRS? Look at the ground rules for being in this classification. To qualify -
The worker must be completely independent from any other business. That means that they work at no particular place of business. They work at more than one location, usually many. They do not work on any regular days of a week or month. They do not work on any regular hours of a day or week. There is only one exception to this rule, up to this point, and that would be renting a private suite with a separate entrance.
An Independent Contractor Services Agreement/contract can be negotiated for any form of compensation such as a percentage of services performed or a flat dollar amount on services performed.
A tax form 1099-Miscellaneous would be issued to the independent contractor on any dollar amount over $600.00 paid to that individual during that calendar year. This is totally the opposite from the way a booth rental business is run and the biggest reason why the IRS says that few individuals in the beauty and barbering industry qualify as an independent contractor.
In our next article, we will explore the reality of setting up and running a business for booth renting. Whether you are a salon, spa or a barbering business owner/landlord or a booth renter, or just considering the possibility of joining the ranks, this article is for you.
Kassidy’s Salon Management Consulting Company is dedicated to helping you meet your goal by providing you with a series of articles on booth renting and having employees. For example, whether you are a salon, spa or barbering business owner who is currently doing booth rental, or you’re a prospective booth rental owner/landlord, we highly recommend seminar # 2 titled “How To Set Up and Run A Business for Booth Renting.” This seminar will provide all the IRS and your own State guidelines regarding the legal and profitable side of owning this kind of a business. Remember 99% of all practicing this business could not pass an audit today. There must be a good reason.
If you are the booth renter/mini-salon owner, you will want to pay particular interest to seminar # 4 “So Now Your a Business Owner/Booth Renter.” This will explain why a salon owner/landlord will give you a contract to sign, what is in that contract, how that contract will protect you and your business and why you want to sign that contract. If you already have a signed contract, it will immediately tell you whether you have the kind of protection that you need and/or what kind of business owner/landlord you’re involved with.
To learn more about Kassidy’s Salon Management Consulting Company or upcoming appearances contact Ken Cassidy directly at kassidy122@earthlink.net.
Submitted By
BeautySalonSecrets.com
Our Sample Booth Rental Agreement has a clear definition of who the "Lessee" (or Booth Renter) is and who the Landlord (or Salon Owner) is. It is available to purchase and download here.
Saturday, September 22, 2007
"HAIR BRAIDING LICENSE LAW SPARKS DEBATE"
Assatou Balde's hands flick smoothly back and forth above her client's partially uncovered head, quickly weaving strands of hair called microbraids and affixing them to the woman's natural hair.
Next to her, Nene Balde goes through a similar process while braiding the locks of another customer. The two sisters' hands twist and pull with silent, hand-over-hand movements they learned long ago and now come to them like a reflex.
But above the quiet artistry at Nene's Hair Braiding in West Philadelphia, rising over the sounds of a soap opera blaring in the background, simmers a burgeoning debate over a new state law that will require hair braiders to get special licenses.
"She got licensed to braid my hair when I paid her," Tasha Budd, 27, called out as Assatou Balde began the hours-long process of putting the tiny braids in her hair. "Why do you need a license in 2006 when they've been braiding all these years? They just want your money."
Supporters say the special licenses will keep braiders from getting unfair fines of up to $1,000 for not being licensed cosmetologists. But there is tension in the braiding community nationwide as some say the government is targeting an African art and may put immigrant braiders out of business.
At Nene's, braids like the ones Budd was getting cost between $140 to $160 for a process that can take five or six hours; cornrows come in at $50. Since the regulations haven't been finalized, the state hasn't determined exactly how much the permit and educational classes would cost.
Some also worry about the plight of immigrant braiders who came to America with very little to their name and often don't speak the English, a skill they would likely need to get through certification classes.
"They came here with that craft," said Bertina Pelzer as she worked on a client's hair at Duafe Holistic Hair Care in North Philadelphia. "That is their only means of getting any sort of income."
Pennsylvania is the latest state to step into the debate over braiding. Nine others, including New York, Florida, Virginia, South Carolina and Louisiana, have special braiding licenses. Others, including Arizona, California, Kansas and Maryland, exempt braiders from cosmetology laws.
In Mississippi last year, the state removed a requirement for African-style braiders to have either a 1,500-hour cosmetology license or a 300-hour wig-specialist license. Braiders had called the licenses expensive and irrelevant.
Under a new law, professional braiders have to take a self-guided test and pay a $25 fee; they also receive a brochure about sanitation.
The owner of Duafe, Syreeta Scott, believes there should be some sort of code of conduct for braiders, but has mixed feelings on the law. She recently had to let some braiders go, in part because they didn't want to get the hair-braiding license.
The law, which went into effect earlier this month, requires 300 hours of training through the state's Board of Cosmetology. If a braider can prove he or she has been practicing for at least three years, only 150 hours of training would be required.
Fines against braiding establishments have also ceased and now the Pennsylvania Department of State has 18 months to come up with specific braiding regulations, said State Rep. Rosita Youngblood, a Philadelphia Democrat who supported the legislation. Before the change, the law considered braiders to be cosmetologists and required them to have the associated 1,250 hours of training.
At Kinky Creation in the East Oak Lane section of Philadelphia, owner Jena Rogers said she understands the concerns of braiders who object to the licensing requirements.
"People look at braiding as a craft. It's like a God-given talent, so why pay taxes for something that's a craft or a gift?" Rogers said. "People like being underground."
Nevertheless, the licensing is a step forward for the profession, she said, one that will help ensure that braiders know more about sanitation and the various related medical conditions such as alopecia, a scalp problem caused by braiding too tight.
It also means the fines will stop. From 2000 through 2005, more than 30 citations were issued to braiders in the Philadelphia area for unlicensed activity, according to the Hairbraider's Association of Philadelphia and Vicinity.
"There's no real health and safety issue here," said Valerie Bayham, staff attorney with the Institute for Justice, a Washington-area group that has challenged state braiding laws across the country.
The regulation will put road blocks in front of people trying to earn a living, she said: "This is not chump change. It's a lot of money and a lot of time."
She pointed to states such as Florida and South Carolina have shorter programs geared toward health and safety.
Kansas and Mississippi issue a one-page flier that needs to be posted in salons.
Pelzer counts herself among those torn over Pennsylvania's new law.
It's not a bad thing for customers to know their braider has been trained in their craft, she said. She also does believe braiders should be paying taxes and know about sanitary rules.
But can a school effectively teach part of a culture that is passed down through generations, learned on front stoops and sidewalks?
"With this, they're trying to take it away," Pelzer said as she starts locks on Charity Bell's hair. "Some of this stuff you can't be taught. When it's cultural, it's within, raised up in you."
Some see the change as a perfect example of government stomping on ethnic tradition.
"I think it's like stepping into our culture," Bell chimed in.
Supporters, however, point out that there can be serious problems if people are not properly trained how to braid. Braiding too tight can cause her to fall out.
Amadou Balde, the owner of Nene's Hair Braiding and the father of Assatou and Nene, said he thinks the state's original cosmetology license requirement was unfair. But now that the license is specifically for braiders, people should do their best to comply, he said.
"Go learn some English and try to pass the test," said Balde, who moved to the U.S. from Senegal in 1987. "We are not in Africa anymore, we are here."
Submitted By
BeautySalonSecrets.com
Next to her, Nene Balde goes through a similar process while braiding the locks of another customer. The two sisters' hands twist and pull with silent, hand-over-hand movements they learned long ago and now come to them like a reflex.
But above the quiet artistry at Nene's Hair Braiding in West Philadelphia, rising over the sounds of a soap opera blaring in the background, simmers a burgeoning debate over a new state law that will require hair braiders to get special licenses.
"She got licensed to braid my hair when I paid her," Tasha Budd, 27, called out as Assatou Balde began the hours-long process of putting the tiny braids in her hair. "Why do you need a license in 2006 when they've been braiding all these years? They just want your money."
Supporters say the special licenses will keep braiders from getting unfair fines of up to $1,000 for not being licensed cosmetologists. But there is tension in the braiding community nationwide as some say the government is targeting an African art and may put immigrant braiders out of business.
At Nene's, braids like the ones Budd was getting cost between $140 to $160 for a process that can take five or six hours; cornrows come in at $50. Since the regulations haven't been finalized, the state hasn't determined exactly how much the permit and educational classes would cost.
Some also worry about the plight of immigrant braiders who came to America with very little to their name and often don't speak the English, a skill they would likely need to get through certification classes.
"They came here with that craft," said Bertina Pelzer as she worked on a client's hair at Duafe Holistic Hair Care in North Philadelphia. "That is their only means of getting any sort of income."
Pennsylvania is the latest state to step into the debate over braiding. Nine others, including New York, Florida, Virginia, South Carolina and Louisiana, have special braiding licenses. Others, including Arizona, California, Kansas and Maryland, exempt braiders from cosmetology laws.
In Mississippi last year, the state removed a requirement for African-style braiders to have either a 1,500-hour cosmetology license or a 300-hour wig-specialist license. Braiders had called the licenses expensive and irrelevant.
Under a new law, professional braiders have to take a self-guided test and pay a $25 fee; they also receive a brochure about sanitation.
The owner of Duafe, Syreeta Scott, believes there should be some sort of code of conduct for braiders, but has mixed feelings on the law. She recently had to let some braiders go, in part because they didn't want to get the hair-braiding license.
The law, which went into effect earlier this month, requires 300 hours of training through the state's Board of Cosmetology. If a braider can prove he or she has been practicing for at least three years, only 150 hours of training would be required.
Fines against braiding establishments have also ceased and now the Pennsylvania Department of State has 18 months to come up with specific braiding regulations, said State Rep. Rosita Youngblood, a Philadelphia Democrat who supported the legislation. Before the change, the law considered braiders to be cosmetologists and required them to have the associated 1,250 hours of training.
At Kinky Creation in the East Oak Lane section of Philadelphia, owner Jena Rogers said she understands the concerns of braiders who object to the licensing requirements.
"People look at braiding as a craft. It's like a God-given talent, so why pay taxes for something that's a craft or a gift?" Rogers said. "People like being underground."
Nevertheless, the licensing is a step forward for the profession, she said, one that will help ensure that braiders know more about sanitation and the various related medical conditions such as alopecia, a scalp problem caused by braiding too tight.
It also means the fines will stop. From 2000 through 2005, more than 30 citations were issued to braiders in the Philadelphia area for unlicensed activity, according to the Hairbraider's Association of Philadelphia and Vicinity.
"There's no real health and safety issue here," said Valerie Bayham, staff attorney with the Institute for Justice, a Washington-area group that has challenged state braiding laws across the country.
The regulation will put road blocks in front of people trying to earn a living, she said: "This is not chump change. It's a lot of money and a lot of time."
She pointed to states such as Florida and South Carolina have shorter programs geared toward health and safety.
Kansas and Mississippi issue a one-page flier that needs to be posted in salons.
Pelzer counts herself among those torn over Pennsylvania's new law.
It's not a bad thing for customers to know their braider has been trained in their craft, she said. She also does believe braiders should be paying taxes and know about sanitary rules.
But can a school effectively teach part of a culture that is passed down through generations, learned on front stoops and sidewalks?
"With this, they're trying to take it away," Pelzer said as she starts locks on Charity Bell's hair. "Some of this stuff you can't be taught. When it's cultural, it's within, raised up in you."
Some see the change as a perfect example of government stomping on ethnic tradition.
"I think it's like stepping into our culture," Bell chimed in.
Supporters, however, point out that there can be serious problems if people are not properly trained how to braid. Braiding too tight can cause her to fall out.
Amadou Balde, the owner of Nene's Hair Braiding and the father of Assatou and Nene, said he thinks the state's original cosmetology license requirement was unfair. But now that the license is specifically for braiders, people should do their best to comply, he said.
"Go learn some English and try to pass the test," said Balde, who moved to the U.S. from Senegal in 1987. "We are not in Africa anymore, we are here."
Submitted By
BeautySalonSecrets.com
Friday, September 21, 2007
ADVANTAGES AND DISADVANTAGES OF BOOTH RENTAL
In many states Booth Rental is not permitted by law. The concept of Booth Rental is easy, a Salon / Spa Owner provides a room or a chair that can be rented on a weekly or monthly basis. The Stylist / Technician works as hard as he/she wants to and keeps all they make less the rent.
ADVANTAGES FROM THE SALON OWNER'S POINT OF VIEW
Similar to a Landlord-Tenant Arrangement
Same income every month
Little Risk
Very Easy to Manage
DISADVANTAGES
Multiple Businesses inside your own
Little opportunity to increase business
Little Reward
No Team Work
ADVANTAGES FROM THE PROVIDER'S POINT OF VIEW
Own Boss
Keep all you make
Build your own Clientele
DISADVANTAGES
No Control of Facility hours or rules
High Risk
Competition inside same Facility
Income Fluctuation
Little organized growth opportunity
Doing Your Own Sales and Marketing
Little Recognition
COMMISSIONS:
Commission based pay is probably the most popular form of remuneration in the Salon / Spa Industry. Commission rates are usually set by skill level, length of service, or size of client base. In Resort / Destination Spas and Salons there is much competition for the prime spots in the reservations book.
ADVANTAGES FROM THE OWNER'S POINT OF VIEW
Providers Eager to work
Easy to Manage
Little Risk
DISADVANTAGES
Difficult to match pay to service level
Difficult to make profit
Multiple Agendas under same Roof
Little Team Work
Pulling Teeth for "In Service"
Performance Evaluations almost Meaningless
High Provider Turnover
ADVANTAGES FROM THE PROVIDER'S POINT OF VIEW
High Rate of Pay
Little Supervision
Build your own Clientele
DISADVANTAGES
Few Raises
Little opportunity for Growth
Competition for work
Seasonal Income Fluctuation
No Benefits
Taking time to help others may cut into income
By
Skip Williams
As a Booth Renter, you have certain responsibilities. Our Sample Booth Rental Agreement addresses these responsibilities and much more. It is available to purchase and download here.
ADVANTAGES FROM THE SALON OWNER'S POINT OF VIEW
Similar to a Landlord-Tenant Arrangement
Same income every month
Little Risk
Very Easy to Manage
DISADVANTAGES
Multiple Businesses inside your own
Little opportunity to increase business
Little Reward
No Team Work
ADVANTAGES FROM THE PROVIDER'S POINT OF VIEW
Own Boss
Keep all you make
Build your own Clientele
DISADVANTAGES
No Control of Facility hours or rules
High Risk
Competition inside same Facility
Income Fluctuation
Little organized growth opportunity
Doing Your Own Sales and Marketing
Little Recognition
COMMISSIONS:
Commission based pay is probably the most popular form of remuneration in the Salon / Spa Industry. Commission rates are usually set by skill level, length of service, or size of client base. In Resort / Destination Spas and Salons there is much competition for the prime spots in the reservations book.
ADVANTAGES FROM THE OWNER'S POINT OF VIEW
Providers Eager to work
Easy to Manage
Little Risk
DISADVANTAGES
Difficult to match pay to service level
Difficult to make profit
Multiple Agendas under same Roof
Little Team Work
Pulling Teeth for "In Service"
Performance Evaluations almost Meaningless
High Provider Turnover
ADVANTAGES FROM THE PROVIDER'S POINT OF VIEW
High Rate of Pay
Little Supervision
Build your own Clientele
DISADVANTAGES
Few Raises
Little opportunity for Growth
Competition for work
Seasonal Income Fluctuation
No Benefits
Taking time to help others may cut into income
By
Skip Williams
As a Booth Renter, you have certain responsibilities. Our Sample Booth Rental Agreement addresses these responsibilities and much more. It is available to purchase and download here.
Tuesday, August 14, 2007
"Truths About Hair & Nail Salon Booth Renters"
One of the most important components between a Booth Renter and Salon Owner is the contract. Deciding which one is right for the both of you is crucial in today’s mix of insurance audits and lawsuits.
As an Independent Contractor or Salon Owner, one of the first things you will want to have is a contract. Why? Oftentimes either the stylist, nail tech or Salon Owner hasn’t made all of the provisions for a proper set-up, which can lead to a run-in with the IRS.
As a Booth Renter, by paying a flat rent to the Salon Owner, you are essentially running your own Business.
In the eyes of the IRS, a Contract or Written Agreement must adhere to State and Federal Statutory Code. Although a Contract doesn’t have to be overly complicated, it must clearly spell out each parties’ rights and responsibilities. A Written Contract should specify the working relationship between the Independent Contractor and the Salon Owner. The most common resource for drawing up Contracts is a Consultant or Lawyer. However, some Salon Owners and Landlords choose to do it themselves.
Former Booth Renters who have become Salon Owners have an advantage when it comes to drawing up Contracts for Booth Renters.
Lawyers really don’t know a whole lot about this Industry. You really should send your contract to a Tax Attorney for review. You want to be protected.
Since common areas are often left out, which can result in failing an audit, we suggest using a Consultant to draw up the Contract. Consultants can advise you on Booth Renting and Employee relationships and also show Salon Owners how to be more profitable above collecting base rent.
With 95% of all Nail Techs in the United States operating as Booth Renters, it is imperative that a Business Owner have a good valid Contract between them and the Booth Renters.
The most common mistake made by someone drawing up their own Contract is that it may not be clear when it comes to Employee and Employer relationship guidelines.
The IRS doesn’t want to see any inclination that the Booth Renter is an Employee. What they want to see is a Lease that is similar to that of a Landlord/Tenant Lease.
Unfortunately, most Stylists, Nail Techs and their Owners do not have a Contract or Lease, let alone one that is signed. That is why 90% of all people operating under these guidelines could not pass an audit today by either the IRS or their State.
Having a Contract that specifies that the Operator is responsible for paying taxes and that he/she pays a flat amount of rent is not enough.
Most Salon Owners and Operators think that if an Agreement says the Operator is responsible for paying taxes and paying rent, the Business Owner is free and clear of responsibilities. Nothing could be farther from the truth.
The IRS and State are looking to see who is responsible for the payment of taxes. This tax payment will be determined from who has control of what as related to the two parties involved.
The Contract, or the lack of it, will make a determination on issues that a large percentage of Contracts do not cover and an Owner or Booth Renter does not even know until after the fact. These are just some of the items that need to be incorporated into a Contract to protect both parties.
For example, the Contract needs to include a section that clearly outlines who the Agreement is between. Often, Contracts only list the Salon Name and then list "Booth Renter" and not the Booth Renter’s name.
Who’s Involved
The first section should clearly state whom the Rental Agreement is between. Basic information should include the day, month, and year, the Name of the Salon or Landlord, and the Name of the Renter. A predominant issue that a Government Agency would look at during a status classification audit is if the Contract describes a Landlord/Tenant relationship. Our Sample Booth Rental Agreement has a clear definition of who the "Lessee" (or Booth Renter) is and who the Landlord (or Salon Owner) is. It is available to purchase and download here.
This sample lists the Salon Name and who the Booth Renter is. Instead of outlining the length of the Contract, the Contract should clearly state that the Booth Renter is solely responsible for any and all taxes due to the State and IRS.
The only problem we have with Booth Renters is that they want to be Booth Renters for tax purposes but they want to be Employees when it comes to advertising, how things are run and getting new business.
As a Booth Renter, you are responsible for paying estimated quarterly taxes. Instead of paying your tax debt by April 15, Booth Renters need to make four payments, one for each quarter of earnings.
Salon Owners should make sure that all Renters get a Form 1099 at the end of the year, which is another way to prove that even on their taxes, they’re agreeing that they’re renting space from you.
Coming to Terms and Compensation
The Compensation Section should include the Amount of Rent that is to be paid each month, or as in some cases, each week.
One of the most important sections is the terms of the Contract. The terms should clearly outline how long the Contract is for. It’s advised to secure one for at least six months to a year.
We highly recommend that the shortest period of time in a Contract be month to month, just like renting an apartment. This means that the rent would be paid monthly at the first of the month. However, the best scenario would be to have a Lease for at least a one-year period.
In order to distinguish the Landlord and Booth Renter, it’s necessary to list how Rent is paid. Both IRS and State Agencies consider it crucial how Rent is paid. For auditing purposes, the Salon cannot accept the Booth Renter’s Client checks as Rent payment.
Salon Owners should only collect rent from the Booth Renter.
Also, Booth Renters have to collect their own money for services rendered. To comply with both State and Federal guidelines, every Booth Renter must keep a cash bag and enough change on hand to accommodate his/her Clients.
Insurance
Although the Contract you choose is at the Booth Renter and Salon Owner’s own discretion, this will be the section that the IRS and State Agencies will look at first. You’ll want to have clearly defined provisions to protect your assets.
A Booth Renter will want to have his/her own Insurance Policy, including both Liability and Professional Coverage. In case of the unforeseen, a policy will protect you. If Clients injure themselves in the Salon, both the Salon Owner and Booth Renter can be held responsible.
The Contract should clearly state that the Booth Renter needs to supply a copy of his/her Liability Insurance prior to the first day of work and that the Insurance needs to be active throughout the entire rental time.
A smart option is to state in the Insurance clause that the Booth Renter, at his/her expense, shall maintain Public Liability Insurance — including Bodily Damage and Property Damage.
Alternative Conditions
Tools and Supplies
In most cases, Booth Renters are required to supply all of the Tools and Products necessary to perform Services. You can incorporate a Clause into the Contract that states this.
Booth Renters are also responsible for generating new Clientele and advertising their Services. However, Booth Renters and the Salon Owner may choose to do this together.
Consider Your Options
Whether you choose to write your own Lease for your Booth Renter or have a Lawyer or Management Company do it for you, remember that there have been very few cases where a Contract was taken to Court simply because an issue was left out.
In most cases, an audit will come from a Salon Owner and Booth Renter that have no Contract at all.
In most of these cases, usually the Salon Owners will lose because the lack of a valid Contract usually points in the direction of the Booth Renter being an Employee of the Salon Owner.
When it comes to a Contract, be sure to have a Consultant review it, whether it was just drawn up or it was an existing Contract. Remember, a Contract is the first thing that the IRS will want to review.
BeautySalonSecrets.com
As an Independent Contractor or Salon Owner, one of the first things you will want to have is a contract. Why? Oftentimes either the stylist, nail tech or Salon Owner hasn’t made all of the provisions for a proper set-up, which can lead to a run-in with the IRS.
As a Booth Renter, by paying a flat rent to the Salon Owner, you are essentially running your own Business.
In the eyes of the IRS, a Contract or Written Agreement must adhere to State and Federal Statutory Code. Although a Contract doesn’t have to be overly complicated, it must clearly spell out each parties’ rights and responsibilities. A Written Contract should specify the working relationship between the Independent Contractor and the Salon Owner. The most common resource for drawing up Contracts is a Consultant or Lawyer. However, some Salon Owners and Landlords choose to do it themselves.
Former Booth Renters who have become Salon Owners have an advantage when it comes to drawing up Contracts for Booth Renters.
Lawyers really don’t know a whole lot about this Industry. You really should send your contract to a Tax Attorney for review. You want to be protected.
Since common areas are often left out, which can result in failing an audit, we suggest using a Consultant to draw up the Contract. Consultants can advise you on Booth Renting and Employee relationships and also show Salon Owners how to be more profitable above collecting base rent.
With 95% of all Nail Techs in the United States operating as Booth Renters, it is imperative that a Business Owner have a good valid Contract between them and the Booth Renters.
The most common mistake made by someone drawing up their own Contract is that it may not be clear when it comes to Employee and Employer relationship guidelines.
The IRS doesn’t want to see any inclination that the Booth Renter is an Employee. What they want to see is a Lease that is similar to that of a Landlord/Tenant Lease.
Unfortunately, most Stylists, Nail Techs and their Owners do not have a Contract or Lease, let alone one that is signed. That is why 90% of all people operating under these guidelines could not pass an audit today by either the IRS or their State.
Having a Contract that specifies that the Operator is responsible for paying taxes and that he/she pays a flat amount of rent is not enough.
Most Salon Owners and Operators think that if an Agreement says the Operator is responsible for paying taxes and paying rent, the Business Owner is free and clear of responsibilities. Nothing could be farther from the truth.
The IRS and State are looking to see who is responsible for the payment of taxes. This tax payment will be determined from who has control of what as related to the two parties involved.
The Contract, or the lack of it, will make a determination on issues that a large percentage of Contracts do not cover and an Owner or Booth Renter does not even know until after the fact. These are just some of the items that need to be incorporated into a Contract to protect both parties.
For example, the Contract needs to include a section that clearly outlines who the Agreement is between. Often, Contracts only list the Salon Name and then list "Booth Renter" and not the Booth Renter’s name.
Who’s Involved
The first section should clearly state whom the Rental Agreement is between. Basic information should include the day, month, and year, the Name of the Salon or Landlord, and the Name of the Renter. A predominant issue that a Government Agency would look at during a status classification audit is if the Contract describes a Landlord/Tenant relationship. Our Sample Booth Rental Agreement has a clear definition of who the "Lessee" (or Booth Renter) is and who the Landlord (or Salon Owner) is. It is available to purchase and download here.
This sample lists the Salon Name and who the Booth Renter is. Instead of outlining the length of the Contract, the Contract should clearly state that the Booth Renter is solely responsible for any and all taxes due to the State and IRS.
The only problem we have with Booth Renters is that they want to be Booth Renters for tax purposes but they want to be Employees when it comes to advertising, how things are run and getting new business.
As a Booth Renter, you are responsible for paying estimated quarterly taxes. Instead of paying your tax debt by April 15, Booth Renters need to make four payments, one for each quarter of earnings.
Salon Owners should make sure that all Renters get a Form 1099 at the end of the year, which is another way to prove that even on their taxes, they’re agreeing that they’re renting space from you.
Coming to Terms and Compensation
The Compensation Section should include the Amount of Rent that is to be paid each month, or as in some cases, each week.
One of the most important sections is the terms of the Contract. The terms should clearly outline how long the Contract is for. It’s advised to secure one for at least six months to a year.
We highly recommend that the shortest period of time in a Contract be month to month, just like renting an apartment. This means that the rent would be paid monthly at the first of the month. However, the best scenario would be to have a Lease for at least a one-year period.
In order to distinguish the Landlord and Booth Renter, it’s necessary to list how Rent is paid. Both IRS and State Agencies consider it crucial how Rent is paid. For auditing purposes, the Salon cannot accept the Booth Renter’s Client checks as Rent payment.
Salon Owners should only collect rent from the Booth Renter.
Also, Booth Renters have to collect their own money for services rendered. To comply with both State and Federal guidelines, every Booth Renter must keep a cash bag and enough change on hand to accommodate his/her Clients.
Insurance
Although the Contract you choose is at the Booth Renter and Salon Owner’s own discretion, this will be the section that the IRS and State Agencies will look at first. You’ll want to have clearly defined provisions to protect your assets.
A Booth Renter will want to have his/her own Insurance Policy, including both Liability and Professional Coverage. In case of the unforeseen, a policy will protect you. If Clients injure themselves in the Salon, both the Salon Owner and Booth Renter can be held responsible.
The Contract should clearly state that the Booth Renter needs to supply a copy of his/her Liability Insurance prior to the first day of work and that the Insurance needs to be active throughout the entire rental time.
A smart option is to state in the Insurance clause that the Booth Renter, at his/her expense, shall maintain Public Liability Insurance — including Bodily Damage and Property Damage.
Alternative Conditions
Tools and Supplies
In most cases, Booth Renters are required to supply all of the Tools and Products necessary to perform Services. You can incorporate a Clause into the Contract that states this.
Booth Renters are also responsible for generating new Clientele and advertising their Services. However, Booth Renters and the Salon Owner may choose to do this together.
Consider Your Options
Whether you choose to write your own Lease for your Booth Renter or have a Lawyer or Management Company do it for you, remember that there have been very few cases where a Contract was taken to Court simply because an issue was left out.
In most cases, an audit will come from a Salon Owner and Booth Renter that have no Contract at all.
In most of these cases, usually the Salon Owners will lose because the lack of a valid Contract usually points in the direction of the Booth Renter being an Employee of the Salon Owner.
When it comes to a Contract, be sure to have a Consultant review it, whether it was just drawn up or it was an existing Contract. Remember, a Contract is the first thing that the IRS will want to review.
BeautySalonSecrets.com
Subscribe to:
Posts (Atom)