How to Choose the Right Compensation Method for Your Salon or Spa

Salon owner selling a product on commission, showing the diversity of salon pay structures.

Please note that this article is intended for educational purposes only and should not be deemed to be or used as legal, employment, or tax advice. For guidance or advice specific to your business, consult with a qualified professional.

Whether you’re opening a new salon or spa, rethinking operations at your existing business, or adding a new service or a retail line, one thing you have to nail down is how you’re going to compensate your staff. The pay structure you choose will impact your operations, business model, and your company’s long-term growth.

Different types of salon workers and pay structures

Let’s start by looking at some of the main types of workers and compensation arrangements at salons and spas so you can choose the methods that work best for your business.

Booth renters

Booth renters pay a monthly fee to rent space in your salon. Your responsibility to booth renters is essentially to provide that space. Booth renters are self-employed professionals, meaning they control their own businesses, accept their own payments, pay themselves, and handle their own taxes.
Some people get confused about the difference between booth renters and independent contractors. The main difference is that booth renters usually work at fixed times from a single location while independent contractors work as needed, and they could work across different locations.

Independent contractors

Some salon owners hire independent contractors when they need them, perhaps during particularly busy periods or when running special promotions. If you hire a contractor, you pay them an agreed amount for the time they work.
Like booth renters, independent contractors work for themselves, meaning they own their businesses.

Possible pay structures for independent contractors

  • Payment at the end of the contract period or at set intervals
  • Payment based on a negotiated rate (hourly or by the job)
  • Bonuses and commissions, if outlined in their contractor agreement

Employees

Employees are people you hire to work at set times, and as the employer, you have control over the relationship. Depending on your business, your employees may work full time, part time, or temporary hours if you have short-term staffing needs.

You can either pay employees a salary or an hourly rate, and you also have the option of adding a commission structure on top, which can vary by employee. As the employer, you’re responsible for paying payroll taxes and withholding income tax for each employee.

Possible pay structures for employees

  • Salary
  • Hourly pay
  • Hourly pay plus flat-rate commission
  • Hourly pay plus tiered commission
  • Hourly pay plus performance bonus (which can also be topped with commissions)

Spa and beauty salon commission structures

If you’re looking to grow your business, adding a commission structure can be an effective incentive for both hourly and salaried employees. Not only can commissions encourage your staff to bring in more business to your spa or salon, but it can boost your sales of products and additional services.
For example, you could provide a commission to stylists whose customers buy hair products to take away. Commissions can help motivate your staff to bring in more clients since they’ll earn more as a result.

The two main types of commission structures

Flat-rate commission
A flat-rate commission is a fixed percentage your staff earns based on how many products and services they sell. It can differ by employee, based on tenure for instance, and you can also set a unique rate for items sold.

For example, a stylist on a 40% commission rate who sold a £100 service to a client would earn £40 while your salon kept £60. Typically, the higher your salon’s base pay, the lower the commission rate. This rate doesn’t change even if the purchase size goes up or down, or if there are discounts layered on, since it’s a fixed percentage. So if your massage therapist books a £150 service and a £200 service, their commission rate for both services remains the same.

Tiered commission
A tiered commission structure enables your staff to earn higher commission rates as they move through set earning tiers. With tiered commissions, an employee who sells £500 worth of products might get a 20% commission, earning an extra £100 that month. If that employee sells £1,000 worth of products, the commission percentage could go up to 25%, so they’d earn £250.

Tiered commissions encourage employees to surpass sales goals since their earnings rise with each goal they hit.

Finding the right salon compensation structure for your business

With so many pay structures to choose from, how do you find the right one for your spa or salon? In part, it depends on your revenue, management, and business growth goals.

Earning salon income from booth renters

The advantage of booth rent is that booth renters provide steady income for your business.

Unlike paying commissions to staff, you don’t have the chance to earn more as booth renters bring in more clients. Another potential downside is that customers who have a bad experience with a booth renter may leave a negative review for your business as a whole, as it will look like the renter is part of your salon or spa. Equally, customers who have great experiences can leave positive feedback for your booth renter and your business, which can turn into a win-win.

Contract payments for independent contractors

When it comes to your business reputation, independent contractors have the same pros and cons as booth renters. But be aware that since independent contractors work for themselves, you may not always be able to get your preferred contractors when you need them.

Independent contractors usually charge a set rate or a rate you negotiate with them. Some provide short-term help while others can work at your business for the long haul.

Base pay for employees with commissions

Salon employees usually earn a combination of a wage and commission to boost their earnings, and you can pay them hourly or salaried at different pay schedules.

Commissioned employees who also earn a separate wage get consistent pay with a potential upside if they bring in more business. On the employer side, employees also give you the advantage of consistency since they’re there when you and your clients need them. Compared to booth renters, there may be more administration involved with managing payroll and taxes if you don’t use payroll software or a professional, such as a CPA.

Another incentive option for employees is performance bonuses. This salon pay structure keeps staff incentivised to work their hardest to grow your business.

What’s the best compensation structure for a hair salon or spa?

It depends on the competition in your market and the expertise needed for your staff. Commissions and bonuses can attract a more experienced team and they can help you grow your business as your staff builds their loyal customer base. But if those methods don’t align with your business and hiring goals, they may not be a fit.

When it comes to choosing the right pay structure for your salon or spa, you’ll need to make a compromise between matching your team’s income expectations and what you can afford to guarantee top-notch service. There is no one-size-fits-all approach to salon compensation, but hopefully the overview above will help you think through the methods that make the most sense for your business.

Make commission tracking easier by automatically connecting Square Appointments with Square Payroll. Learn more about how to save time with commissions so you can focus on your business.