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Podcast Episode 16: Product Deductions from Commission - What Owners and Employees Need to Know
71 Plays6 months ago
Learn how BC salon owners can legally structure product cost deductions from commissions, and what employees need to know to protect their rights.
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Transcript
Introduction & Legal Context
00:00:00
Speaker
Do you pay your staff commission but either want to or already deduct some of the cost of the products before you calculate the commission? If you want to do that properly and within the law, this episode is for you.
00:00:24
Speaker
Hey there everybody, this is Greg Robbins over here at the beauty council. Thanks so much for joining us on another episode of the business of style. So
BC Employment Standards & Commission Payments
00:00:34
Speaker
today we are going to cover, let's say adjust one of the previous episodes that we covered episode 14 called risky business, where we talked about the requirements for the BC employment standards around how commission is paid. So let me just break down this episode a little bit for you because you're going to Just go on a little journey with me here. We're gonna make it quick about how you can deduct the cost of certain products from your commission calculation from your staff in British Columbia. It is actually allowed depending on how you structure it. So I know in the last episode we said that it's not allowed and that is true according to pure guidance from BC standards. It's in their commission fact sheet. It was in a response from the province to us.
00:01:21
Speaker
So if you want to just keep things clean, you can certainly stick with that and just pay commission on the full price charge to the client and avoid any further complications. However, if
Legal Guidelines on Cost Deductions
00:01:32
Speaker
you are in a situation where you want to recover some of your costs of running your business and specifically around the products used for certain services, we do recommend that you take a very specific approach to the way in which you agree with your team and your staff to avoid any problems.
00:01:48
Speaker
Once again, as we always do, we always wanna put in a little disclaimer here that anything that we provide in this episode or on our website around guidance around how you operate your business and navigate your way through the legal requirements as it relates to labor, taxes, anything else, are merely suggestions for consideration. We highly recommend pass by either a lawyer, an accountant, or an HR expert to make sure that you are in compliance. If you're a beauty council member,
00:02:17
Speaker
you can actually take advantage of free access to some of those professionals, check it out online, give us a call or send us a note and we'll tell you more. Okay, so needless to say, there's just a few things that we have to consider when we put this together. So here's how we're going to break it out for you. First thing is we'll just recap what the government of British Columbia employment standard states on their website, in their worksheets and in their response to us.
00:02:42
Speaker
around the common and typical way of paying commissions.
Tribunal Decisions & Agreements
00:02:46
Speaker
Second piece is we're gonna just talk about a few decisions made by the BC Employment Standards Tribunal, ah which actually set the stage for you to be able to properly and within within the confines of the law, ah remove those costs prior to your commission calculation. And then we'll just wrap up and we'll just make some suggestions on how you can best set up your commission deductions to avoid any conflicts.
00:03:10
Speaker
We have many, many more details on our website and in the members area, you can also download documents, checklists and other details. We do encourage you to go and check that out. Okay. So first of all, what does the BC employment standards state? Well, on their commission worksheet, which was very recently updated, I'm just going to read to you like basically word for word, what is written in this.
00:03:33
Speaker
Document it says the cost of doing business now. This is the commission worksheet It says an employer cannot pass on the cost of doing business to an employee An employee cannot be required to pay for sample sales kits or demonstration products used in the course of employment deductions from wages or payments made for items of this nature cannot be recovered under the act. So what does that mean? Essentially what employment standards is saying is if you run a business and you have expenses, you cannot apply those expenses against the commission calculation you pay your staff. And it does make sense because if you think about it, where does it end? Do you start taking off expenses like hydro, insurance, foils?
00:04:17
Speaker
It goes on forever, you never know where to stop. That is probably one of the main reasons behind there their logic. It's just easier for a government to make a blanket statement that prevents people from trying to make their own decisions as opposed to being very specific and dictating or you know mandating what everybody can do in certain
Importance of Timing in Agreements
00:04:36
Speaker
cases. So they do leave a certain amount of discretion up to the market to to do what's right.
00:04:41
Speaker
So the next piece we'll talk about is like what decisions were made by the BC Employment Standards Tribunal. So in the first case that I just covered, it's pretty plain and simple. If you pick this document up, you would pay your your your staff strictly on whatever the cost of the service was. 50% commission on a $200 haircut is $100. Plain and simple, no questions asked, no additional work.
00:05:05
Speaker
or calculations required. It doesn't matter how much product was used or what supplies were needed, everything is just included in the cost of doing business and the rest is paid out to the employee. However, there were some decisions made by an agency called the BC Employment Standards Tribunal. And essentially, the tribunal is a a department of the government where if somebody has a challenge in a workplace, they take it up to the tribunal for decision making.
00:05:32
Speaker
And there's a case actually in Vancouver, and we do give a link to it over in our in our website. It allows the expenses of certain services to be removed before the calculation is made. And based on that ruling made by the BC Employment Standards Tribunal, it does allow for this setup to be made in ah in a in a place of business. So in a salon or spa,
00:05:59
Speaker
It opens the door for that opportunity for an agreement between an employee and a salonner to be established and upheld by the decisions made by the Employment Standards Tribunal. Now, within this framework, the key points as outlined by our legal advisor are two. The first The really important thing to establish is the timing of any agreements between owners and staff around what when these expenses will be deducted from the calculation. So what do I mean by that? Where I guess, what did the lawyers mean by that? More like it, it basically means that if you started, let's say on January 1st of last year and about midway through ah some of these expenses were being deducted suddenly out of your commission, that is not very cool. What you need to do when you're establishing these sort of um agreements with your staff is they need to be made in advance of any of the calculations being
00:07:04
Speaker
established and practiced. So if you started January 1st, you need to have an agreement in place prior to your start date that specifies how any costs will be deducted from your commission calculation. If you don't do that, if you do it sort of later or halfway through or adjust it or tinker with it, that can be taken to um the BC Employment Standards Tribunal or it could be of course taken to Employment Standards, which is a little simpler,
00:07:32
Speaker
um as being a violation of the commission agreement as the the province requires. So timing is critical. If
Crafting Legal Commission Agreements
00:07:40
Speaker
you do not have an agreement in place right now with your staff members and you are taking costs off of the commission calculation, you could find yourself in a little bit of, let's say hot water or thin ice, i'm probably better to call it thin ice ah when it comes to the legality of of the way you operate your business. Our recommendation is to get that agreement in place as quickly as you possibly can, possibly even acknowledge that this has been in practice up till now and will continue forward in this way as agreed by both parties. So the second piece is be specific about the costs that are being deducted. So if you are deducting the cost of one tube of color per specific hair service, make that clear. If you are deducting the cost of
00:08:29
Speaker
ah the use of certain hyaluronic acids or other other products that are being used in a high expense or high cost service for skin care or nails or whatever, that needs to be specified. It can't just sort of be vague or we'll just take some of the costs off, not sure what they are, we'll figure it out at the time. So that is very important to make those costs and how you calculate them and the way in which you remove them prior to the calculation is really important.
00:08:58
Speaker
Now, our legal advisors did say that deducting these costs from what's called wages is not allowed. That is in contravention of the employment standards. However, the proper wording is to say that they are permitted to determine their commission structure and product deductions from gross revenue prior to calculating commission. That is permitted. Complicated stuff, but that's legal speak and that's the way they word it.
00:09:25
Speaker
Okay, so let's talk about the third piece here, how to best set up your commission deductions to avoid conflicts. I've already covered a little bit of that, but just to recap, ah first of all, if you engage in this practice, what you want to do is establish an agreement, preferably in writing. ah Verbal agreements do stand up, but according to the legal experts, it doesn't carry the same amount of clarity if you find yourself in a court case, it's a more of a he said, she said kind of situation, which would really not be the best position you want to find yourself in. So establish this agreement in writing. If you haven't already, do it soon. The second piece is be absolutely certain and clear on what expenses will be removed and what those expenses will be. So if a tuba color costs $15 today,
00:10:12
Speaker
You have to allow for it to cost more in the future, so you may have to renegotiate that contract or attach a schedule to it that details the cost of that of that product so that it can be considered down the road. And thirdly, just from you know purely a cultural standpoint within your operation,
00:10:29
Speaker
There always is the temptation to want to save money as a salon owner. We support that, absolutely. You know, viability and profitability is numero uno in our books that you just have to have. And if you don't, you run the risk of either going out of business or not being able to grow the way you want to or educate your team. Essentially, what we do is just make sure that any of these calculations are profitable, not only for you as a salon owner but also, or a spa owner, but also for the individual staff. Keep in mind that their income is going to be reduced by those costs deducted. That does need to be considered. And if staff aren't happy, they're not going to perform, they won't be at their peak game, and you'll eventually, over time, lose more money just from poor culture as opposed to costs recovered. So
Support from Beauty Council
00:11:16
Speaker
just throwing that in there to always remember that at the end of the day, it comes down to staff happiness and the performance of your team.
00:11:23
Speaker
Hope this helps. We do provide a lot of support over at the Beauty Council. If you are a member, give us a call, log in, check out the legal documents. um You can, of course, get 20 minutes with our lawyer, no cost whatsoever. A couple of opportunities there to either just pass by a couple of ideas, maybe ask for a template, or just pass along what you already have. We also have resources for human resources.
00:11:48
Speaker
So if you have an employee agreement and you want that reviewed by our human resource expert, that too is available to you at no cost as a member. So if there's anything else you do need on this topic, please reach out. As a member, we're here to help you and all the best moving forward. I know it's a complex issue and we're just trying to guide you in the right direction to avoid any conflicts, problems, and to be as successful as you possibly can.