As a salon owner, if you choose the chair-rental business model for your stylists, you'll want to understand more than just the going rate for chair rentals. The IRS has certain guidelines for stylists who rent, and you'll want to know the costs you need to cover plus the additional profit you're looking to make. Including certain amenities for your renters may cost you little, while attracting higher-quality stylists and allowing you to command a higher rental rate.
TL;DR (Too Long; Didn't Read)
To work up the minimum you'll need to charge, add up all the costs you have to cover each month such as rent, utilities, insurance, staff on the payroll, advertising and any website-or-internet-related costs. Total up these costs by month, then divide them by the number of chairs in your shop. Next, add in your desired profit per chair.
The IRS View
The IRS has certain guidelines that define whether the stylist renting your chair is an independent contractor or an employee. If you want to rent your chairs, you'll need to hire your stylists as independent contractors. IRS guidelines are that an employment scenario involves control over stylists' behavior and finances, such as work-related expenses, and your relationship with the stylist. You'll want to note these important considerations to determine if you need to withhold or pay income and other taxes on wages paid to the stylist. For a true independent contractor, you don't need to withhold or pay any taxes.
Employee or Contractor?
It's helpful to understand in detail how the IRS differentiates an employee versus an independent contractor. Generally speaking, a salon owner can only control the end result of the stylist's work but not how, when or where it's done for the stylist to qualify as an independent contractor. The greater the degree of control exerted, such as training or detailed instructions on how to carry out work, the more likely the IRS would deem an employee relationship, rather than that of an independent contractor.
To be an independent contractor, the salon cannot control or direct the business or financial aspects of the stylist, such as significant investments in stylists' equipment. The salon owner cannot dictate where to buy supplies or which tools the stylist uses. Regarding the work relationship, salon owners should have a written contract specifying the chair rent and details of the independent contractor's work description. The salon may not provide insurance, vacation or sick pay, or the worker would qualify as an employee. Be aware that if you misclassify independent contractors and they look more like employees, you as a salon owner would be liable for paying employment taxes to the IRS.
Calculate Your Costs
To work up the minimum you'll need to charge, add up all the costs you have to cover each month such as rent, utilities, insurance, staff on the payroll, advertising and any website-or-internet-related costs. Total up these costs by month, then divide them by the number of chairs in your shop. Next, add in your desired profit per chair. This sets the bare minimum you need to charge to rent each chair to cover your costs and make a profit. Increase the rate as needed to be in line with the market.
Having workers as independent contractors rather than employees requires less effort for the salon because stylists buy their own products, supply and maintain their own equipment, pursue training on their own and book their own appointments. As a perk, some salons offer stylists discounts on products. Offering a few weeks' free rent and small perks can attract stylists and help salon owners hang onto their best stylists. Most salons offer use of water, gowns, washer, dryer and electricity as part of the rental contract.
Conduct Some Research
While figuring out your chair rental fee, find ways to get a feel for rents at other salons with a similar location and customer base. Check job posting boards, talk to other shop owners and any stylists willing to share the amount of rent they pay. Get an idea of what the average rental rates are for chairs in a variety of different salon types, from a barber shop to a high-end place. When interviewing candidates, ask what rates they're looking to pay, keeping in mind that they'll likely give you a low-ball figure.
- The Booth-Rental Answer Book
Cynthia Gaffney has spent over 20 years in finance with experience in valuation, corporate financial planning, mergers & acquisitions consulting and small business ownership. She has worked as a financial writer and editor for several online finance and small business publications since 2011, including AZCentral.com's Small Business section, The Balance.com, Chron.com's Small Business section, and LegalBeagle.com. A Southern California native, Cynthia received her Bachelor of Science degree in finance and business economics from USC.