Salon Advisory Membership

The IRS guidelines require you to collect information about tips and include those in the W-2s for employees. Both cash and credit card tips should be collected regularly and paid out to the employees but also reported as part of their wages.  The salon owner bears the responsibility to ask employees to report their tips and then properly record those as part of the payroll system each pay period.

For the salon industry there are two common models, the employee model and the booth renter model.  The employees receive W-2 wages and the service providers will typically be paid through commissions while the front desk workers would be paid hourly.  A booth renter is an independent contractor who rents a space from the salon owner.  The booth renter and salon owner have a relationship just like a landlord where rent is collected each month and the booth renter is free to operate how they desire.

Gift cards are recorded as a liability on the balance sheet when they are sold.  It is wise to set this money aside so that you can service the gift cards when they are redeemed.  Gift cards do not have an expiration date, but for tax purposes the gift cards become income to the salon after 1 year so keeping track of the gift card liability is very important.

Having a strategy for owner compensation is a key to a thriving salon company.  Whether the owner works behind the chair or not, paying the owner or multiple owners effectively can generate huge tax savings.  Every situation is different, but being strategic and intentional about owner compensation is a great way to maximize the return on investment for a salon owner.