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Rent a Chair (self-employed) or Employee Status – Which is best for your Business?

A developing trend in The UK and Europe for Thousands of hairdressers and Barbers is to rent a chair in their salon.

As a salon owner should you take the rent-a-chair route?

The Hairdressing Federation has highlighted this as a very common occurrence faced by all hairdressing salons from start-ups to established businesses in Ireland. 

Benefits of chair rental

At a quick glance, the clear financial savings and freedom from employment law restrictions seem enticing for both for you as owner and the freelancer.

But as with most things there is no one easy answer. There are pros and cons to both business approaches.

It’s your hair salon yet the chair renter is running their own business within it.

This may lead to a perceived dilution of your role as Salon proprietor.

What’s more, if you plump for the chair or booth rental business model, it can be very hard to revert to an employee-only hair salon at a later date if you discover you’ve made an expensive mistake.

However, there are also advantages !

What about “The One Stop Shop”      

Here’s a possible scenario

Typical Saturday Scenario

11AM Appointment

Hairdresser Appointment for Mother

Make Up artist appointment for Sister

Nail Bar Appointment for Daughter

All done under the 1 roof.

No multi locations leading to possible parking difficulties and undue stress for clients.

In this blog post we will highlight the following issues:

  • What and how to charge your chair renter.
  • The major benefits to owners of using the rent-a-chair model.
  • Why you must have a rent-a-chair or booth rental agreement in place.
  • The self employment essentials you can’t afford to ignore.
  • Avoiding the pitfalls and making it work for you.

First, let’s look at the different ways to set up a hairdresser’s rent-a-chair or booth renting arrangement:

What’s the appropriate rent for your salon chair or booth rental?

These are three main methods:

  1. Charge a fixed weekly/monthly rent to the renter.

This is the most straightforward way, which can work well for both parties. You know what income you’ll receive each month and the freelancer knows exactly what expenses they have to find.

The disadvantage of this method is the “ Looking over the shoulder syndrome “ ie

The Renter has more business, probably making more money  than the person who owns the business.

  • Take a percentage of the chair’s takings rather than charge a fixed rent.

You just receive a cut of the renters takings.

This will be agreed between the parties and ideally should be subject to a legal contract being drawn up. This may be on a 50%/50% basis

This method can only work if there is trust between the parties. Such a simple thing as having a Receptionist dealing with all income may solve any potential problems. Also, it is critical to have a modern Digital Cash Register that will give daily, computerised reports. You also need to trust the freelancer implicitly.

3. A combination of the two. I think this works best for the salon owner. You charge a lesser fixed sum (but you still have some guaranteed income) plus you take a cut of the hairdresser’s takings. It can be like winning the jackpot.The downside?

It can cause resentment as the freelancer can feel you, the salon owner, are having your cake and eating it.

Why choose the rent-a-chair business model for your salon?

You can:

  • Save money
  • No Wages to be paid
  • No holiday pay/sick pay
  • No employer PRSI cONTRIBUTIONS (8.5%-10.75%
  • No pension contributions
  • No employee contracts

Here are just a few examples. A rent-a-chair hairdresser can:

  • Not bother to turn up after a heavy night.
  • Decide to knock off early and go home.
  • Decide which services and products they offer.
  • Worse: they can poach and walk off with your salon clients.
  • Worse still: they can persuade your staff to come and work with them in another salon and bring their clients.

The answer to this potential business nightmare?

Have a Service Contract between the two of you setting out the rules of the game. This way you’re both protected and know where you stand.

Rent-a-chair service contracts for hairdressers

Thousands of hairdressers manage to make rent-a-chair work for them successfully.

“You just need to be aware of the pitfalls and take legal advice before, not after, taking this route. Don’t put your business in jeopardy.”

Always go to your lawyer or get in touch with a body like the NHF (UK salons only) who offer proven contracts specifically for rent-a-chair.

Yes, it will cost money to consult a lawyer, but not as much money, heartache and hassle as sorting the mess out if it all ends in tears.

Is the hair stylist / Nail Bar Technician/ Make up artist really self-employed?

Look at the following Link to Irish Revenue clearly setting out the rules whether a person is employed or self employed.

YOU may be surprised !

Be really careful.

If you are satisfied that this is a self employment status you really need to look at all the scernarios, that may arise, both good and bad.

You need to then incorporate these into a service contract between yourself and the person renting the Chair.

The following are some areas to be considered.

Then you should contact your solicitor to draw up a service contract. You might consider some of the following points

  • Length of the Service Contract. ?
  • What happens at end of contract, Any Goodwill
  • What are rules in event of dipute or non compliance with terms of contract.
  • When they will work in your salon. Do you want to open up on a Sunday just for them?
  • What is policy if Salon Closed, is it open for Renter?
  • All client payments through central Cash Register
  • They must have separate Insurance in place
  • Who provides the hair products and equipment ?
  • Have they access to salon employees. If so there must be an additional % payable to salon
  • They may have use of Receptionist
  • Charges for cleaning, heating, laundry etc.

Some potential drawbacks for salon owners:

1: they are running their OWN business alongside your business

It may only be a chair but they are Self employed and they, like you want the best for their business ie Maximise Income and Minimise Costs.

The person renting the chair is your competitor.

Protect your Brand.

Protect your Customer Base.

The Nail Bar technician may offer an additional service to a client. This client may reduce their spend on their Hair , thus reducing your income.

This may be happening under your watch.

Be vigilant

2. Loss of Staff

Having a chair renter may cause animosity in your team.

Some staff may also want to go self employed and this may lead to a loss of client revenue.

3. Brand Dilution of your salon brand

Is it the Renters Salon or the Proprietors Salon ?

How to reduce the risks of rent-a-chair

If you decide to go down the hairdresser chair or booth rental route here are some sensible business precautions you can take to reduce your exposure:

  • As you would with employees, set up a rigorous selection process. Verify references, have a couple of interviews and a trade test. Involve other team members especially if they are self-employed too.
  • If they are currently working elsewhere how about a mystery shop?
  • Do have that Service Contract I talked about earlier. It’s essential.
  • Have a probation period of 2 or 3 months. If it isn’t working you can part company easily.

Weigh up the pros and cons

If you’re a start-up salon with a tight budget and a small client base but don’t want the risk of employing someone, then renting a chair out is it’s a great way of getting a passive income for your hair salon and getting a contribution to your overheads.

If you want to introduce a new service, like hair extensions, but can’t afford to employ a specialist then a freelancer may be an entry route.

The flip side is that if they are very successful then their earnings can be substantial and this could have been your profit if you’d taken the employee route.

WHAT CAN TAXRETURNSIRELAND.IE DO FOR YOU ?

We will discuss in detail the Pro’s & Con’s of your situation.

We will advise you on the Optimal working relationship and assist you in setting up the most appropriate internal and financial controls.

We will take control of your Accounting and Taxation requirements, allowing you to concentrate on developing your business.

Amongst the services we offer are

  • Monthly VAT Returns
  • Monthly management Accounts
  • Weekly PAYE Returns
  • Weekly Staff Payslips
  • Staff Contracts of Employment
  • Annual Accounts
  • Company Secretarial
  • Tax Planning

Remember

TAXRETURNSIRELAND.IE will help your business to grow by allowing you to concentrate on business development.

For any Queries relating Accounting or Taxation contact Info@taxreturnsireland.ie

The contents of this article are not intended to amount to advice and you should not rely on any of the contents of this article. Professional advice should be obtained before taking or refraining from taking any action as a result of the above contents. William Halpin & Co. disclaim all liability and responsibility arising from any reliance placed on any of the contents of this article.