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Paying Employees

It goes without saying that selecting the correct pay rate and system is absolutely fundamental for the success of your business. There is no one best pay structure I produce hundreds of Contracts and there are probably 20 different models. Too often salon owners select their reward system based on their personal experiences and preferences with limited research , costings or consideration of what actually motivates their staff to work.

Over the next 2 issues we will review the possibilities available, starting at the basics, before looking at more complex pay systems and especially how to change your pay system.

The Law

The law provides that employees must receive the National Minimum Wage, the penalty for non compliance is a substantial fine. Firstly let’s just look at the options:

1. Fixed Hourly Rate/Weekly/Monthly Salary

The benefits are that wage costs are predictable throughout the year as is the employees’ income. In most sectors this is the most commonly used system ie you work xxx hours and you get paid xxx pounds. There is no additional commission.

2. Additional Pay Enhancements

There is no legal requirement to pay for breaks, or a higher rate for weekend work or work on a Bank Holiday. It is entirely up to you as the Employer if you pay enhancements or for Breaks. In my experience very few salons do.

3. Hourly rate Or Commission

This is probably the most commonly used system in Salons.

Basically staff receive an hourly rate (or often just the NMW/Living wage is quoted) OR a percentage of their column income . So for example the Contract might say your weekly pay is based on the NMW or 35% of your column income whichever is the greater .This is simple enough but just a few observations for consideration.

  • You should work with your accountant or professional adviser to ensure the percentage chosen is viable for you to run a successful business. Some simple modelling will show the difference in terms of staff earnings and turnover.
  • Over the last 12 months I have produced contracts with the percentage varying between 20 and 50%!
  • The agreement should be in writing, for example is this a system based on weekly column income or 4 weekly or monthly. Be clear that the column earnings are net of vat.

Periodically I discover salons paying commission on vat!

  • Is the retail of products included?
  • Be clear what happens during holidays; my advice is the employee should receive the average of their previous 13 weeks earnings.

4. Tiered Commission

This system is also relatively common. It does require detailed research and costing. However the principle is that if a therapist hits their personal income target (normally weekly or monthly) they receive a bonus. If they then hit the next target the percentage increases. So for example my contract might say I earn £8 per hour; if my column income (net of vat and retail) hits £1000 I receive either a fixed amount or eg 10 % of the column income. If my column income hits £1500 I receive a higher cash bonus and 12.5% of the additional earnings .The logic is that the targets motivate staff and rewards the top performers. As a rule of thumb 3 ties the stylists gross earnings is seen as a basic required performance to make the post financially viable.

The whole idea of pay as a motivator has been questioned. Some believe a commission structure is essential to “motivate” staff. However a commission structure which is badly designed or has unachievable targets can be worse than not having commission at all. Falling £45 pounds of your target and receiving no commission can clearly have a negative effect.

The Practicalities

  • Is the target daily, weekly, or monthly? All have pros and cons. Having hit the target you do not want employees to switch off. Similarly if it becomes clear a target isn’t going to be achieved you don’t want employees to throw in the towel.
  • You also need to guard against clients being seen in terms of income and retail prospects. You obviously want your staff to retail but not at the cost of losing clients who can feel harassed. Therefore some salons also reward repeat bookings and new client retention.
  • Similarly commission structures can result in clients becoming a resource and new/junior staff finding it difficult to fill their column. For this reason some salons have moved towards a “salon or team target” rather than individual targets. In theory this generates a team work ethic and staff are rewarded in line with the overall business performance .It also enables you to involve the reception or front of house staff in the team This is often a good indicator of the impact of your salon manager.

The key issue is that the scheme you adopt is thoroughly costed i.e. the extra commission rewards the stylist for extra effort and the extra pay is more than self financing through extra turnover i.e. it is cost effective.

David Wright Personnel

Phone - 01302 355 372

Mobile - 07930 358 067