I am a salon owner who has my stylist claim their tips. My biggest concern is I have to pay taxes on their tips which my company doesn't receive any of the revenue from. Do you have a recommendation on how to offset this or are there any new tax laws coming into effect ? I feel it's a penalty to salon owners and if the IRS would put the entire burden on the stylist, more owners would make sure the staff was claiming their tips.
Frustrated in Nebraska
Dear Frustrated In Nebraska,
You are not the only one that is frustrated over the tipping requiments. The problem hits all salons that are attempting to be honest and follow the law. When you are in an industry that works on such a low bottom line margin to start with; and then you pile on the payroll taxes, workman comp, and other add on’s that you deal with, tax on tips sometimes is the "straw that breaks the camels back." I have had commission salons convert to booth rental back when the IRS started enforcing tip reporting in salons and spas.
What can you do about it? Very little. I do suggest that you make sure that the producers know how much that they are making per hour, including tips. In industries that work on a commission it is easy for the worker to get complacent. Showing them what their hourly pay is when you include tips can be a real eye opener for them, and hopefully will help them appreciate their job more.
Here is another idea that has worked. I have set up a very simple financial chart to show the producers the actual bottom line income of the salon. Not wanting to show all of the information, I use a breakdown based on a $100.00 sale. I first show that the producer gets $40.00 to $50.00 of the sales, depending on the pay structure. I then show the other costs and expenses, giving the salon on the average $3.00 to $10.00 per $100.00 sale. As you can imagine, many times it is less than $3.00. If you use this technique, then show how payroll taxes on tips impacts the bottom line, you may have a window to introducing a service charge to the stylist to offset the additional taxes paid.
The Professional Beauty Association (PBA, formerly TSA) has been working hard in Washington DC to obtain a credit for salons to offset the tax burden. Currently, restaurants have an offsetting credit but salons do not. Go figure? There have been bills introduced in Congress but unfortunately nothing has gotten out of committee.
Frustrated in Nebraska
Dear Frustrated In Nebraska,
You are not the only one that is frustrated over the tipping requiments. The problem hits all salons that are attempting to be honest and follow the law. When you are in an industry that works on such a low bottom line margin to start with; and then you pile on the payroll taxes, workman comp, and other add on’s that you deal with, tax on tips sometimes is the "straw that breaks the camels back." I have had commission salons convert to booth rental back when the IRS started enforcing tip reporting in salons and spas.
What can you do about it? Very little. I do suggest that you make sure that the producers know how much that they are making per hour, including tips. In industries that work on a commission it is easy for the worker to get complacent. Showing them what their hourly pay is when you include tips can be a real eye opener for them, and hopefully will help them appreciate their job more.
Here is another idea that has worked. I have set up a very simple financial chart to show the producers the actual bottom line income of the salon. Not wanting to show all of the information, I use a breakdown based on a $100.00 sale. I first show that the producer gets $40.00 to $50.00 of the sales, depending on the pay structure. I then show the other costs and expenses, giving the salon on the average $3.00 to $10.00 per $100.00 sale. As you can imagine, many times it is less than $3.00. If you use this technique, then show how payroll taxes on tips impacts the bottom line, you may have a window to introducing a service charge to the stylist to offset the additional taxes paid.
The Professional Beauty Association (PBA, formerly TSA) has been working hard in Washington DC to obtain a credit for salons to offset the tax burden. Currently, restaurants have an offsetting credit but salons do not. Go figure? There have been bills introduced in Congress but unfortunately nothing has gotten out of committee.
If you do not belong to PBA I strongly suggest you consider joining. They not only provide a wealth of information, they are your voice in Washington on tipping and diversion. You can visit their website at http://www.probeauty.org/about/.
Let me know if there is anything else I can do to assist.
Let me know if there is anything else I can do to assist.
