Choosing the right business model for your salon or spa can be difficult, as there are just so many options to choose from! Even after deciding on a pay structure that suits your business, navigating your way around paying commission can be confusing. I mean, is there a ‘best way’ of paying staff? If so, what would that look like?
To shed a bit of light on this dense and difficult subject, let’s break it down into four main salon pay structures. There are advantages and disadvantages for each, along with concrete examples and my personal opinion on the matter.
Hourly Pay vs Salary
How Hourly Pay Works
In an hourly pay set-up, employees get paid for each hour they work in the salon. For example, if you’re paying £13.00 per hour, and throughout the month, the employee works 15 hours one week, 25 hours the next, 18 hours, and then 30 hours, that’s a total of 88 hours. This gets multiplied by £13.00 to give their gross monthly wage (before tax and National Insurance contributions) of £1,144.
Pros
- It’s more flexible. You could have employees on part-time contracts and only call them in when you need them. This structure helps with cash flow and resources.
- Staff only get paid for the work they do, helping you keep a tighter control of staff costs. Paying staff to sit around is costly.
- Hourly pay with non-set hours can be more appealing to some staff members who want more flexibility in their job
Cons
- It’s more difficult to work out their holiday pay as they work different hours every week. To overcome this, you must keep a note of their hours while also working out holiday pay when they’re off.
- If you’re using part time contracts that don’t have a minimum contracted working period, you probably won’t see great staff loyalty. In a market where 70% of Gen Z workers say that they plan on leaving their employers in the next year, giving them more reason to is a recipe for disaster.
How Salary Works
Salaried employees get paid a set wage for the whole year. This includes their holiday pay. For example, if you pay them £13.00 per hour for 37.5 hours a week, you multiply this by 52 weeks to get their annual gross salary of £25,350. Divided by 12 to get their total monthly pay, the employee receives gross £2112.50 per month.
Pros
- Easy to work out, and you know in advance what your monthly outlay on wages is.
- Holiday pay is already included, so there’s nothing different you need to do when your employees go on holiday: they just get their regular monthly pay.
- Increased staff retention as your team know you are committed to them as employees.
Cons
- You could be paying staff to sit around doing nothing if they’re not busy. You need to know your utilisation percentage (tells you what capacity your team and each individual is working to) which you can easily find in your Phorest reporting section.
In my opinion: Of the two pay structures outlined, salary works better as it’s less hassle for business owners, and more stable for employees. In this structure, you know how much salary goes out each month, and you can budget for it. However, you’ve got to make sure that everyone in the team is working to agreed utilisation figures to ensure a successful set-up on both ends. Hosting regular one-to-one meetings and discussing expectations with underperforming staff members is a good tool to implement when offering salaried positions.
Hourly Pay vs Commission
How Commission Works
Instead of your employees getting paid for their work hours, commission structures pays them a percentage of commission for every treatment they do. For example, if someone does a treatment that costs £50, you might give them 30-50% commission on this. In this set-up, they would get paid between £15-25 for that hour, but that number could go up or down per hour depending on the treatments they are providing.
Pros
- You only pay for the work they do (as long as it’s more than the minimum wage).
- As they can earn more money per hour, they may be inclined to sell (or upsell) more expensive services, which could be off-putting for clients.
Cons
- You need to make sure that, as they are employed in your business, they are getting at least minimum wage for the hours they work. This needs to be checked every time they are paid, and supplemented if they are not making at least minimum wage.
- If they are paid purely on commission, and they don’t think it’s high enough, they may move elsewhere or become an independent worker, taking their clients with them to the detriment of your business.
- If you’re VAT-registered, you would need to consider whether you take this off before the commission is calculated.
In my opinion: If you want to go down this route, you may as well rent a chair to them and/or set up your salon as a booth rental business. If you have a good contract, you can still attract clients and workers without the hassle of payroll.
Hourly Pay/Salary vs Performance Bonus
How Performance Bonus Works
The performance bonus model is a tiered structure, so you would give them a sales target, for example, £4000 per month (this should be easily achieved if they bring in £40 per hour, and have a utilisation rate of 75%.
The structure could look something like this:
- Sales of £0 – 3,999: 0% commission
- Sales of £$4,000 – 4,499: 10% commission
- Sales above £5,000: 20% commission
Meaning that if your employee had sales of £5,500, commission would be as follows:
- Sales of £0-3,999 = £0
- Sales of £4,000-4,499 = £499 X 10% = £4.99
- Sales of £4,500-5,500 = £1,000 X 20% = £200
Total commission = £204.99
Pros
- A performance bonus structure rewards your high performers more
- It can push employees to perform better and encourage them to upsell more products and services
Cons
- This structure can be tricky to work out, but you could ask your accountant to provide you with a spreadsheet that will calculate it for you.
- Some employees might try to sell services or products that your clients don’t need, purely to get more commission. This could drive clients away.
- You must give employees an average of their commission in their holiday pay based on the last 52 weeks (or however long they have worked for you if less). This means you can’t just pay the basic wage when they’re on holiday- you must pay their average.
In my opinion: You must know your numbers to make sure you get a model that’s right for you. How much does your salon cost to run? How much are you looking to improve sales and profit? It’s easy to end up with the opposite effect of what you want to achieve if you don’t think it through properly. Nobody wants staff taking less time but doing shoddy work to fit in more clients!
Salon Pay Structures: Final Thoughts
On the topic of staff pay structures, no matter what structure you choose, it can help to pay your staff monthly. Paying employees weekly can cost you more with an accountant (as it must be processed at least 4 times a month rather than once a month)and will take up more of your valuable time if you’re doing it yourself.
Want to find out more?
You can contact Gloria on gloria@murrayassoc.co.uk
