Hi Amanda! It actually is legal, acceptable, and appropriate to be compensated this way. The employer is obligated to meet or exceed the prevailing minimum wage for each hour you work, so technically, you are being compensated for hours you are idle. If you were to be given commission plus hourly, the employer would either give you a high base pay and a low commission (likely contingent upon performance) or vice versa.

The back bar fees are only permissible if a.) You were made aware that your compensation would be calculated from net sales (not gross), and b.) It comes out of the gross sale, not your paycheck.

I feel their request is extremely inappropriate. It’s all quid, not quo. What are they going to do for you in exchange for this “freelance fee?” Will they be booking the events through the salon, providing you with any supplies and staff support you may need, covering your travel costs, negotiating and collecting payment for you, and paying taxes on that income? Or are they just expecting you to pay them to work? What exactly are they bringing to the table other than a request for side revenue they have no right to even attempt to claim?

I understand you don’t want to burn a bridge and that you love where you work, so I’d recommend having a discussion about what you expect in exchange. They need to put up or shut up, and show a little respect to you while they’re at it.

I recommend three things:
1.) be honest,
2.) be transparent (even if it’s scary), and
3.) be positive (as much as possible).

I’ve had to have these conversations a lot, and there’s nothing scarier than telling a room full of employees you value and don’t want to lose that you made a mistake and need to reduce their pay. There’s no easy way to do it, but it has to be done, so prepare in advance for people to leave (because some likely will).

Start off by telling them how much you value them and their work. Then, let them know that you made a mistake. You wanted to be generous, but the compensation system isn’t working out. At 50%, it’s hard to make ends meet. It’s even harder to secure benefits or grow the business. You can’t invest in their education, jump on new technologies and techniques that could give them and the spa a competitive edge, and your ability to advertise is hamstrung, making it harder to draw in clients and keep everyone busy.

Tell them you want to do more for them. You want to be able to give them access to affordable company health care plans, continuing education, paid time off, and other benefits most people in our industry never have the luxury of enjoying. They deserve the security that comes with a steady paycheck and a retirement savings. You deserve to see a profit for all your time and effort as well.

Tell them you plan to meet with each of them one-on-one to answer their questions and that by no means are you kicking them out immediately. If they want to work elsewhere, they’re welcome to stay until the switch occurs and you’ll happily serve as a reference for them–but the change IS happening and it IS NOT up for debate or negotiation.

If the compensation system is causing the salon to lose money, don’t be afraid to show them that. Every salon has one mouthy professional who has never been in a salon owner’s shoes but thinks she knows it all. If you anticipate that kind of reaction, you can either make it clear that you’re delivering an announcement and not holding a debate session, or you can slap your financials on the table and literally force them to stand where you’re standing. Ask them what they would do in your position. Compensation, by far, is the largest expense a salon owner incurs. When you’ve done everything you can to keep operational overhead to a minimum, there’s nowhere else to make cuts.

Personally, I’m not afraid to let employees know they aren’t worth 50% of gross sales. Even as owners, the vast majority of us aren’t earning 50% of gross sales. (Like I said in the post–they’ve invested nothing. They have no right to feel as if they deserve 50% of the salon’s income, especially since they aren’t paying any of the salon’s bills.)

The salon’s needs come first–everything else comes after. That’s the facts. If they would rather see your salon fail than be paid more appropriately for their positions and their performance, they aren’t employees you want anyway.

LOL. No, that’s definitely not right, especially in California. You should read this post, and this post. Then maybe read this one too.

Seriously. California is literally the very worst state to misclassify in. She can’t make your employment contingent like that. That isn’t how employment classification works.

Yikes. The commission split in lieu of actual rent is a terrible idea. (Five out of six IRS revenue rulings determined the salon landlords who received a percentage of gross sales in lieu of rent were actually employees and assessed back wages and penalties to the salon landlords.) Not only is it a terrible idea, it’s not advantageous for you. Once you pay your federal self-employment tax (15.3% of your income) and your state self-employment tax (here’s an article about that for those in California who are self-employed), that evaporates. Then you have supplies on top of that.

My advice is this: first, make sure you’re actually self-employed. 99% of salon owners don’t know how to use the classification and are doing things wrong (to your extreme disadvantage). Next, consider renting somewhere with a flat rate, or finding employment somewhere that does things legally (paying you an hourly rate plus a piece-rate for the services you perform–it’s the only legal way to compensate stylists in CA aside from paying a flat hourly rate).