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Episode 14 - Three Risks to Avoid with Staff and Renters in your Salon or Spa
54 Plays7 months ago
Curious about common pitfalls in running your salon or spa? This episode of "The Business of Style" podcast, called "Risky Business," has got you covered. Hosted by Greg Robins, this episode dives into the nitty-gritty of staying on the right side of the law and avoiding costly mistakes.
**Episode Overview**
Greg discusses three hot topics that often trip up salon and spa owners. Let’s break them down:
1. **Renting vs. Employment**: Are you clear on the difference between renting space to independent contractors and treating them like employees? It's vital to get this right to keep the Canada Revenue Agency (CRA) off your back.
2. **Employment Insurance (EI) for Hair Professionals**: Did you know you still need to pay EI for your hairstylists and barbers, even if they rent space from you? This little-known rule can save you a lot of headaches.
3. **Commission Pay Deductions**: Think you can deduct business costs from your staff's commission pay? Think again. Greg explains why this practice can land you in hot water.
**Renting vs. Employment**
Picture this: you’re a landlord with a tenant. You wouldn’t tell them what hours to keep or what furniture to use, right? The same goes for your salon or spa renters. They’re independent contractors, and your job is to provide a space, not to micromanage. Keep it professional and hands-off to avoid any CRA issues. We have a handy guide in our members area to help you get this right.
**Employment Insurance for Hair Professionals**
Here’s a curveball: even if your hairstylists and barbers rent a chair from you, you still need to pay their EI. Surprised? Many are. This rule doesn’t apply to skincare or other beauty services, but if it involves hair, you’re on the hook. Better safe than sorry, right?
**Commission Pay Deductions**
Let’s clear up some confusion: you can’t deduct business costs from your staff’s commission pay. So, if a stylist charges $300 for a service, you pay commission on the full $300, not on $270 after subtracting product costs. It’s the law, and following it keeps everyone happy and your business in the clear.
If you’re a BeautyCouncil member, don’t forget to tap into our resources. Need a quick consultation or some legal advice? We’ve got you covered. Not a member yet? Join us today and get the support you need to thrive.
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Transcript
Introduction and Episode Overview
00:00:00
Speaker
Hey everybody, welcome to another episode of The Business of Style, your podcast brought to you by the beauty council. My name's Greg Robbins, and I'm here to talk a little bit about an email that we sent, just a follow up since we did get a number of phone calls about it, and I wanted to just sort of round out what we had talked about. This episode is called Risky Business.
00:00:31
Speaker
Hi there. Just a quick note about the contents of this podcast. Subjects covered are current as of July 2024 for the province of British Columbia, Canada. All comments are not legal advice and you should seek appropriate professional advice that's tailored to your situation.
Defining Risky Business in Beauty Industry
00:00:47
Speaker
All right. So what is Risky Business? Well, first of all, it's a bad movie. from way back in the day. It wasn't that bad, but if you've ever seen it, you know what I mean? It's kind of cheesy, but what really is a risky business? um You know, as as an association, we speak to a lot of people. A lot of people give us a call. they They ask questions. We help them along. That's kind of what we do, actually. And we find many, many times, and we're not I'm not pointing the finger at anybody, but many times people just aren't aware of what their obligations are as an employer.
00:01:21
Speaker
if they have staff. um And some some salon owners, salon and spa owners who rent aren't quite aware of what's required to you know properly rent and stay within the confines of the rules set out by our friends at Canada Revenue Agency. So today, I'm just gonna talk about three different things that constitutes what we call running a risky business, okay? So that is taking a risk or operating just outside the rules, which could find you in a bit of trouble down the road. That's our goal here at the association is to advise you to operate the best kind of business you possibly can so that you can have a long and fulfilling sustainable career.
Key Risks for Salon Owners
00:02:00
Speaker
So the three things we're going to talk about today about is just like renting, but treating your renters like staff, which can nullify um your standing as a renter in the eyes of CRA. The second piece is just not paying EI for hair dressers or hair stylists and barbers only.
00:02:17
Speaker
That's a very misunderstood piece. We often get calls about the details on this and the third piece is just subtracting costs from Commission pay or pay that you give your staff You're you're actually not allowed to do that. As a matter of fact, so those are the three pieces. So let's get going The first one is Renting to people however treating the people that you rent to as staff. So let's just go over what that means So what is first of all? What is renting? Renting is essentially operating almost like let's say we always say it's like having an apartment building You have an apartment building you rent the units out to people and what they do in those units is really none of your business the only thing you really are concerned with is to collect the rent and and keep the grounds clean and keep the building secure and safe and to code. That's it. So it's almost like a landlord-tenant relationship. When you have a salon, spa, or barbershop and you are renting ah spaces to individuals who are self-employed independent contractors, you really don't have much control over what they do or how they operate.
00:03:21
Speaker
in that landlord-tenant relationship.
Canada Revenue Agency and Compliance Issues
00:03:24
Speaker
So, you know, sometimes we see things on Facebook or Instagram that talk about a rental opportunity but specify what hours you have to work, what products you have to use, what educational programs you have to take, and that's just exerting too much control on the renter. And so what Canada Revenue Agency doesn't like or doesn't approve of is the relationship between a renter and a salon spa or barbershop kind of not really being representative of a true rental agreement. In other words, what what do I mean by that? Their concern is that the people who own the the building or the business are not paying their proper fair share of taxes in terms of source deductions,
00:04:08
Speaker
CPP, EI and other you know labor related things. And so they're always on the lookout for this kind of setup where there's an opportunity for owners to try and skirt those payments and save some money and not pay their taxes.
Resources for Proper Business Practices
00:04:23
Speaker
So what can get you in a bit of hot water is that if you're beginning to exert what's called too much control over the people that you're renting to, Canada revenue can come in and actually reassess you and make it what's called a determination and determine that the individuals who are working in your space are actually not renters, they are staff. The penalties and fines can go back, I think seven years, I'm i'm not sure, but I believe that's as far back as they can go at this point.
00:04:50
Speaker
and it can cost you a lot of money and put you on radar for Canada revenue, which nobody likes. So we do have a guide in um our members area that tells you more about how to outline and how to set up your relationship between your salon spa and barbershop and your renters. Highly encourage you to go check that out. If you're a member and you have any questions, we're happy to help you through that as well. We did direct you over to Carol Warren. She's our human resources ah professional that's available to all members, 20-minute consultation, and you can also get legal advice as well too, which is very useful when it comes to applying the law to these kinds of things. Because, you know, if you end up in court, you want to know what you're going to ah possibly be facing in advance, and so you can fix stuff up. So please, if you remember, pop in, use those resources, contact us, and we'll we'll help you out.
00:05:38
Speaker
So the second piece, not paying employment insurance for hair stylists and barbers. Guess what folks, even if you have a renter in your space in your business, and it's an independent contractor, it's very clear that that's what it is, and you're sticking with all the other rules, you still need to pay their and your portion of employment insurance if they are a hairstylist or a barber. This does not apply to anybody in the skincare side of things, laser, lashes, brows, skincare, none of those apply, but if they are performing hair services um of any kind,
00:06:19
Speaker
ah like barber, hairstylist, even color techs, you need to pay their employment insurance even if they are a renter. We've spoken to a number of people who were renters who who didn't have this paid for them. And then they stopped working and they weren't able to collect. and So that is actually a rule. There are links to it in in our Business in a Box program. ah We can give you more details if you need it. But it's a little known rule that is a requirement for anybody who has either staff or renters. So be aware of that one. You need to pay EI for your independent contractors if they are in the hair business.
Correcting Misunderstandings and Practices
00:06:57
Speaker
Third piece, subtracting costs from commission pay or other pay, so business costs. So there was a bit of a debate recently on social media about this and we did provide some commentary in that debate whereby if you are paying your staff a commission for let's say services, you are not allowed as a business to deduct the cost of those services against their commission. Let me give you an example. Somebody performs a hair color on a client. The cost of goods, the cost of hair color is $30. The cost of the service is $300. You must pay commission on the cost of the service as billed to the client. You cannot take the $30 cost of the color products
00:07:41
Speaker
and then pay on 270 bucks if you take $30 away. That is against labor code and you're not allowed to do it. So be mindful of that. Again, this is sort of what we call risky business. In other words, if you were to be audited or someone were to complain, you could fall into some some challenges with the provincial government on this one. So keep in mind that your pricing structure and your commission structure must match. So what do I mean by that? If you are charging $300, let's say, for a service, you must pay your commission rate on the $300. You cannot remove or subtract any costs whatsoever from running the business. And that includes things like credit card commissions, cost of goods sold, fees for booking services, whatnot. You cannot actually do that. That is clearly spelled out in the provincial labor code.
00:08:30
Speaker
that it's that it's not allowed. So those are the three areas that we look at and hear most about as we call kind of risky business. So if you're running a business, ah you are taking a risk by ah first of all ah treating any renters like staff, in other words telling them what to do and how they have to do it. ah not paying EI for hairstylists and barbers, that is again something you must do, and subtracting cost of business costs from any commission payments or other forms of payments that you provide ah your staff. If you are engaging in any of these, we get it, we understand, you know what, sometimes mistakes are made, that's fine, now is the time to correct them.
00:09:10
Speaker
We're here to help. We can provide you with the proper documentation. If you are somebody working in in a salon spa or barbershop and you have questions or you'd like more clarity and you're a member, please reach out to us. We're here to support not only owners, but also staff. So thanks again, everybody. Really wanted to just follow up because of the number of calls we get on this. ah There's a lot more.
Conclusion and Association Support
00:09:33
Speaker
there are a lot more risks actually and we actually spoke to a member this week that was just in a salon where where not only were rules being broken like you know labor rules but big big federal tax rules as well too and this person was sort of left high and dry after a number of years
00:09:51
Speaker
with really no way to to re to make good because that salon had been closed for a number of years. So you don't want to find yourself in that situation. And we certainly ah would not like to see any anybody end up in that predicament as well. So reach out, give us a call, contact us, use the links on our page, become a member if you're not already. We're here to help and to see you succeed. Thanks everybody. We'll talk again soon.