Many salon owners are now having their employees become booth renters. This sudden switch can be incredibly stressful for professionals who have had their entire lives turned upside down by COVID-19. In this article, we will talk about why these employers are making this sudden change and what it means to be self-employed.
Let’s start with the questions coming up most frequently in the comments and my inboxes:
Can my boss require us to rent space?
Nobody can “require” you to do anything. You are free to find another job elsewhere or even rent elsewhere. That said, your employer is not required to keep you on their payroll. Employment is “at-will” in all US states. This means your employment may be terminated for any reason, or for no reason at all. (There are unique exceptions to this, but generally, they tend not to apply to workers in our industry.) Should you refuse the offer to rent space in the facility, the owner would be within their rights to terminate your employment.
Is my salon owner trying to take advantage of me and my coworkers by suddenly switching us from employees to renters?
Unless your salon owner is proposing reclassifying you as an independent contractor while continuing to control you like an employee (read more about that here), I would consider it unlikely, given the situation.
The shutdowns caused by coronavirus outbreaks have severely impacted salon revenue. Many salon owners found themselves in a position where their only option was to accept a PPP loan, keep their fingers crossed that they’d qualify for forgiveness, and hope for things to improve before their payments came due. A good deal of them signed these loan agreements during the first round, before the terms were even finalized by the SBA. They found out after the fact that qualifying for forgiveness was going to be harder than they anticipated. Those who didn’t take loans have stretched their savings and their lines of credit to their absolute limits.
Until the widespread deployment of a vaccine, we cannot expect for things to go back to normal completely. Having employees during this time can be prohibitively expensive. Payroll, without question, constitutes our largest expense. While many of these salon owners would love nothing more than to keep their employees on payroll and retain control over their brand and their services, they understand that supporting their normal workforce may not be possible. Many of these salon owners are only turning to rental because they feel they have no choice.
If you were a salon owner, would you rather terminate your employees entirely or convert them to renters?
The salon owners I’ve consulted with who have had to make this choice have not done so without considerable trepidation. None of them had any desire to become landlords. None of them wanted to surrender control of the companies they had worked so hard to establish and grow. But when you find yourself between a rock and another rock, you do what you must.
So, let’s learn about what self employment is, how booth rental works, and what you need to do to lay the groundwork for success.
What does it mean to be a self-employed renter?
If you are a renter, you are self employed. That means you have full control over your business. This arrangement is no different than if you had rented your own storefront. The only thing separating you from a traditional salon owner is that you operate your business under the roof of another salon owner.
This means you:
- Set your own prices and schedule
- Create your own service protocols
- Select and purchase your own products
- Collect your own payments
- Manage your own appointments
- Pay your own taxes
- Have your own business entity, bank account, website, social profiles, booking software, and payment system
- Insure yourself with your own professional liability policy
The person you sign a lease with becomes your landlord, not your employer or manager.
There is no in-between here. You pay for a space to operate your business. The landlord does not get to tell you how to conduct business , what to charge, when to work, or what to wear. They can’t require you to use their branding in your promotional materials, attend mandatory meetings or training sessions, or use their booking or payment software. They also cannot require you to do salon chores or act as a “team player.” From this point forward, there is no team. You’re a business owner operating in direct competition with every professional you work alongside.
This also means that you no longer will be supplied by or managed by the salon owner. The owner does not have to provide you with product, clients, marketing, paid leave, free time for vacation, reception services, an assistant, or any of the other benefits that you may have become accustomed to as an employee.
You are a business owner in every sense of the word. I cannot stress that enough.
First, you may need to obtain a business license. Depending on your state laws you may be required to register either as a DBA, a sole proprietor, or LLC. In some situations, you may benefit from filing as a corporation, but that’s unusual for most booth renters. To learn which business structure is right for you, I recommend reading this article.
When it comes to taxes, you will pay quarterly estimated tax payments. This process is more straightforward than it sounds.
Estimated tax payments are due as follows:
- January 1 to March 31 – April 15
- April 1 to May 31 – June 15
- June 1 to August 31 – September 15
- September 1 to December 31 – January 15 of the following year
There are a few ways you can calculate the amount of each payment:
- Use IRS Form 1040-ES
- Divide the total taxes due for the prior year by four.
I don’t know about you, but I can’t see into the future (and despite loving tax law, I hate tax forms), so I take my prior year’s tax responsibility and divide it into quarterly payments. If you’re married filing jointly and really want to ensure that you won’t be stuck with a big tax bill, have your spouse increase their withholding. I also recommend saving aggressively. That way, no matter how unexpectedly well your business performed, you will always have enough money on hand to cover additional taxes.
As long as you pay at least 100% of what you owed the prior year in taxes (or 90% of what you will owe the current year), you will not be assigned any fines or penalties for underpayment.
You may send estimated tax payments with Form 1040-ES by mail, or you can pay online, by phone or from your mobile device using the IRS2Go app. (Corporations must deposit the payment using the EFTPS—the Electronic Federal Tax Payment System.)
At the end of the year, before January 31st, you will supply the salon owner you rent space from with a 1099 form if you have paid that salon owner in excess of $600 that year. This will allow the landlord to claim your rent as business income and you to deduct that rent as a business expense.
I highly recommend that every professional have a professional liability insurance policy, even if you aren’t required to. Professional liability insurance policies are incredibly affordable and provide a substantial deal of protection against lawsuits. You can get them from a variety of insurance companies or through one of the industry’s professional associations (usually at a discount).
How can I be successful as a new booth renter?
First, start treating your business like a business. You don’t need to put together a business plan, but it helps. Don’t be intimidated. Your business plan doesn’t need to conform to any special format.
Keep personal and professional separated in your dealings with your peers (who are now your competitors), your clients (who are now your customers), and your landlord (who is no longer your boss).
You can find more information in the following posts:
- Self-Employment: Pros and Cons
- Too Small to Fail
- Microsalon Math
- Know Your Rights
- What does booth rental cost?
Do not pull your prices out of thin air or you will doom your business to failure before it even starts.
You could follow the steps outlined in this post, but if you want a system that does all the math for you (and includes a wealth of information and tools for self-employed beauty professionals), I recommend checking out The Microsalon Owner’s Complete Business Toolkit.
The Microsalon Owner’s Success Toolkit includes:
- The Microsalon Owner’s Planning Checklist
- The Microsalon Owner’s Pricing Spreadsheet, a 7-page spreadsheet that calculates your service prices for you!
- The Microsalon Owner’s Pricing Guide, a 28-page instruction manual that will walk you through the process of using the Service Pricing Spreadsheet,
- The Microsalon Owner’s Business Plan Design Guide, a 2-page overview detailing the anatomy of a business plan. Simply answer the questions in each section and you’ll have a solid framework!
- The Microsalon Owner’s Lease Component Checklist, a 3-page document that simplifies lease terms to keep you from signing an incomplete (or unfair) rental agreement,
- The Microsalon Assessment Tool: Be Worth What You Charge, an 11-page checklist and salon evaluation resource
- The Microsalon Owner’s Website Design Guide, a practical 2-page reference detailing each page your site should have and what each page should contain.
- Employer Obligations for Microsalon Owners, a 9-page document that covers the basics of employment law for solo entrepreneurs. (If you plan to hire an assistant or receptionist at some point, you’re going to need to read this document.)
- Suggested Resources for Microsalon Owners, an 8-page reference guide where you can find every awesome thing I recommend—domain registrars, hosting companies, web designers and DIY website builders, mailing list management services, free fonts, free stock photos, salon management tools, accounting software for solo entrepreneurs, and so much more. Learn what each resource does, why they’re great, and why I recommend them.
