As a salon owner should you take the rent-a-chair (booth rental) route?
With the gig economy growing rapidly in the UK it’s a decision faced by all hairdressing salons from start-ups to established businesses. In the USA booth rental is even more popular as a business model than in the UK.
Benefits of chair or booth 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. For me this means you lose control of your brand, client experience, culture and marketing.
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.
In this blog post I’m taking you through:
- 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 right rent for your salon chair or booth rental?
I often get asked for the best way to charge your rent-a-chair stylist…
These are three main methods:
1. Charge a fixed weekly/monthly rent to the freelancer. 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 downside?
As the salon owner it can be galling to see the rent-a-chair chock-full of clients and know you won’t earn a penny more.
2. Take a percentage of the chair’s takings rather than charge a fixed rent. You just receive a cut of the stylists’ takings. 40% to the hair salon and 60% to the freelancer is common.The downside?
If the freelance stylist takes a holiday, is sick or goes through a quiet patch then your rental income will drop off a cliff.
You also need to trust the freelancer implicitly. All invoices need to go through your salon till so you can calculate the percentage due to you. It can be all too tempting for stylists to ‘slip’ payments past the salon till.
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?
The bottom line…
- save money
- avoid employment law
Let’s examine these two benefits in detail:
1. Salons save money with freelance team members
Filling your salon with rent-a-chair hairdressers can be very appealing, especially when you’re just starting out and money is tight.
If you’re based in the UK you’ll save money in these 4 main areas:
Sickness and maternity: The stylist is running their own business so you have no responsibility to pay any Benefits if the freelancer is away from work due to illness or maternity/paternity. Clearly major savings to be made here.
Holiday pay: Likewise you have no legal obligation to pay them for time off or holidays.
National Insurance: As freelancers are self employed they have to pay all their own taxes and national insurance. So you save on Employer’s national insurance contributions. For most employees in the UK this is running at 13.8% currently so it’s a significant saving. You’ll find the current HMRC Employers’ NI contributions table here.
Auto-enrolment pensions: Every salon will have to run these for their employees within the next couple of years. As employer you have to contribute too. It’s not optional.
2. UK Employment law doesn’t protect chair renters
A freelance hairdresser is self-employed (not an employee of your salon business) and so is not protected by, nor has the benefit of UK Employment law.
This means, for example, that chair renters have no rights for unfair dismissal, minimum wages, holiday pay and maternity rights.
At this point, as a salon owner you’re probably thinking yippee – it make my life much more straight-forward.
And you’re right…
But. There always is a ‘but’. You and your hair salon business have no legal protection either.
Okay, but what does this mean in practice?
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 truly self-employed?
This is a hot potato in the UK currently with the Uber legal case going to appeal and the government seemingly intent on capping the gig economy.
Here’s the big question:
“Is your freelancer really self employed or (in the eyes of the law and HM Revenue and Customs) actually a salon employee?”
If they really are an employee then you will be liable for backdated employer tax, penalties and risk claims for unfair dismissal, maternity benefits and discrimination.
That’s why you need to be aware of it.
The law and the taxman don’t care a jot about the label you give your rent-a-chair. They will look behind the job title to discover the true nature of the relationship:
- stipulating working hours
- setting prices
- providing or paying for training
- dictating which products to use/sell
- insisting they wear a uniform
are just some of the things which the UK Courts and HMRC say point to employment rather than self-employment.
I can’t say this strongly enough. Always take full legal advice before taking on a booth or chair renter and get an agreement in place before they start.
There are very many things to get straight in your mind before taking advice. Here are just a few to get you thinking along the right lines:
- Length of the Service Contract. Are you committing to one year? Or two or three? And what happens at the end?
- What if you catch them stealing or doing something to harm your salon and other team members? Freelancers have rights too – you can’t just tell them to walk out the door.
- When they will work in your salon. Do you want to open up on a Sunday just for them?
- What happens to their clients when they are sick or on holiday?
- How do you deal with client payments? Through your till or straight to them?
- Have you made sure they have their own insurance in place?
- Are you responsible for helping them attract new clients and marketing?
- Who provides the hair products and equipment – chair, hairdryers, backwash?
- Can they use your salon apprentices and receptionist?
- Charges for cleaning, heating, laundry etc.
5 big rent-a-chair & booth rental pitfalls for salon owners:
I’d guess at this point you want to stop reading and go and fire all your employees.
Keep reading. There are 5 pitfalls to consider before deciding to embark on the rent-a-chair or booth route:
Pitfall One: they are running their OWN business
This is the most persuasive business reason of all for me.
The chair or booth renter is running a competing business not only on your premises, but standing amongst your employees and clients.
A booth or chair renter is self-employed and has ownership of their own clients, including those which they generate and serve from your salon.
Don’t get me wrong. There are lots of freelance hairdressers out there who wouldn’t dream of doing anything detrimental to the salon owner’s business.
But times change. And their attitude may well change…
What if your rent-a-chair needs more clients? Gets hacked off giving you a cut of the profits? Has a change of personal circumstances and needs to earn some more dosh fast?
It is when one of these things happen that you may be reminded your friendly stylist is in fact a competing ambitious hairdresser, with their own cherished business, working in your salon premises.
If all your team are renting that makes life easier- in a ‘dog eat dog’ sort of way. It’s when the rest of the team are employed and you have just a couple of rent-a-chair hairdressers working out of your premises that it can get sticky.
Pitfall Two: team building can be challenging
As the rent-a-chair freelancer is really working for their own business they don’t expect you to manage them. Thumbs up you say. Less hassle for me.
Yet, for this very reason, they are probably not going to make a good team player. You don’t need me to tell you that one ‘bad apple’ can spoil a team – you run a hair salon and know how teams behave and react.
Motivating and managing a salon team is one of the hardest tasks a salon owner has. So why make life so much harder for yourself by adding a truculent rent-a-chair stylist to the potentially toxic mix?
I can see it from the freelancer’s perspective too. They are running their own business, paying their own income tax and handing over a ‘rent’ to you. Why should they act as if you employed them? You can see their point.
I’ll cover the best answer I know to this dilemma in a minute… so keep reading.
Pitfall Three: your salon brand, standards and culture
In a nutshell: the freelancer is not your employee, but your salon’s reputation can be affected if they provide a poor hairdressing service or poor customer care.
As a salon entrepreneur you invest time and money marketing your business. You set high standards for technical work and client care. You build your business reputation.
And then some idiot damages it, and it’s outside your control.
Or perhaps they start using their social platforms to promote their services in your salon in a way which harms the brand you’ve worked so hard to create. You can try to cover this situation in the Service Contract, but it’s too late once the damage is done.
Pitfall Four: poaching your clients and staff
I touched on poaching earlier. You can build some safeguards into a Service Contract but who wants to resort to the Courts? It’s too late and expensive.
Of course, you are always open to any salon employee leaving, and then poaching clients and your staff. It’s called life.
But a rent-a-chair hairdresser is already self-employed. They are already running a business so the chances of them deciding to leave and set up a hair salon down the road are probably higher than for most employees.
Keep this in mind:
- When you take legal advice on a Service Contract.
- Keep your booking systems separate from them.
- Ensure your own valuable client database is password protected.
Pitfall Five: firing a rent-a chair
Whether a freelance hairdresser will work well for your salon depends on the individual circumstances. Just bear in mind however, that if it isn’t working out you can’t just fire them if you have a Service Contract in place.
Just because they are not covered by Employment Law doesn’t mean they don’t have any legal rights.
Your right to terminate a rent-a-chair’s services is limited by the terms of your written Service Contract. If you fire your freelancer a Court could find you liable for breach of contract.
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.
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. Lockhart Meyer Ltd disclaim all liability and responsibility arising from any reliance placed on any of the contents of this article.