I was never a Boy Scout, but I know their motto – “Be Prepared.”
What’s shortsighted and asinine is to refuse to take a simple, quick, convenient method of being prepared for unexpected occurrences.
It never fails to amaze me how many people assume that either nothing bad will happen, or if it does, a working ATM will be conveniently placed. I, on the other hand, (having common sense) know that (A) things do not always go according to plan, and (B) having even a little more cash on hand than you think you’ll need can be a marvelous thing.
And Really Not All That Bright–37 is a bit young to be a grandpa, don’t you think?
What’s shortsighted and asinine is assuming that everyone has the luxury of “extra cash” to carry around “just in case.” It’s far less simple and convenient if you are flat broke.
I think it would be easier for the salon to just raise the rates for the stylists. You add a few bucks to the stylists fees and it all works out in the end.
My guess is that the stylists don’t want CC tips because they don’t want to pay taxes on all of their tips.
On the one hand, I kind of understand. Who wouldn’t like to pay less tax?
But, as someone who believes in the general principle of progressive taxation, and of contributing to society through the payment of taxes, and as someone who also believes that we all should be treated equally under whatever system of taxation we decide upon, I think that tipped workers have exactly the same moral and legal obligation to pay taxes on their income as everyone else. If the use of credit cards actually reduces the amount of tax avoidance in the areas of employment that rely heavily on tips, it’s certainly not something I’m going to complain about.
And that’s the thing. It is not tax avoidance that is going on. That is perfectly fine and legal. If you have a legal way to pay less tax, by all means, do so. I take advantage of every tax avoidance vehicle my CPA has to reduce my tax burden.
What is going on here is outright tax Evasion, which is not perfectly fine, and is quite illegal.
JcWoman
Salons usually operate on commission, so the stylist is getting something like 50% of the ticket total. (This varies dramatically by salon and experience.) They get this off of the base cost of the styling. The employer actually pays another 12 to 15% on top of this, so they are only getting around 35% of the actual revenue. Fees and taxes on tips added on top of that bite into that remainder. If you are tipping 20% on $50 ($10), the salon is out another $1.50 or so, reducing their margin from 17.50 to $16 or so, essentially losing another 10% off the margin.
Restaurants operate under a completely different model where tips are the primary compensation for the servers, so there the business is pretty much forced to eat the cost of giving tips, though quite a bit of evasion shenanigans happen there too.
As far as the cash back model to give the stylist, I am not sure exactly why they would do that, but I can guess. Requiring a cash tip to be given makes some sense, as that aids in tax evasion. Having it added on to the ticket, rather than a separate charge reduces the extra tip charge that merchant processors charge.
I have an extremely good relationship with my bank and credit card processor, so I probably get better rates than many of these salons, so it is possible that their tip rate is much higher than the base rate. I only pay about .5% higher, so I have no incentive to play such games.
Also, due to the new roll-out of chip cards and new hardware to take them, I had to go several rounds with my bank and processor to be able to take all tips from all cards without issues. If there were any issues that caused any error (a bad swipe, pulling the chip too soon, not knowing or being willing to use you PIN if it asked for it, or having a tap card, and not aligning it perfectly on the first try), it would drop the tip, and the only way to put it back on would be to go through the entire transaction again. This took several months to get straightened out, even though I was on them regularly about fixing it. If they had a similar issue, and didn’t manage to get it fixed, then that is another reason to not take tips.
Now that I think about it, when they originally set up my new equipment, I could not take tips at all, and had to have them get that set up as well. That was something that was taken care of before the installation guy left, but I can see why many salons would not have questioned the new setup, and just no longer been able to accept tips.
p.s. Speaking of which, if you ever go into business, go to a decent national bank (I could recommend one) to set up your accounts and credit card processing. I get calls from merchant services all the time trying to lure me into their “low rates” that are substantially higher than I pay (as well as calls trying to get me to explore “alternative means of financing” my business at several points higher than my bank gives me). I imagine many of these places did not do their research, and are being ripped off by their billing services, leading to them implementing such foolish policies.
If a salon has 1099 contractors, they are almost certainly breaking labor law. I looked into it, and the restrictions on when they can be considered contractors are pretty heavy. They almost certainly should be classified as employees, but the salon is doing shady practices to foist then entirety of the tax burden onto the stylist, who will probably not keep proper records, and either not pay the appropriate taxes, or get audited and get into alot of trouble with the IRS.
It’s a great idea if you wish to keep your costs down at the price of law, ethics, and the morale of your workforce.
Sorry if I come across as a bit angry about these practices, but my competition gets away with such things, reducing their cost, and making me have to work harder to make the same margin. I believe, however, in the long run, that doing the right thing will be more profitable, it’s just frustrating in the meantime.
At my salon, one former stylist changed the amount on the tip line to a higher amount. Naturally, he was found out and fired but the salon owner immediately went to an all cash tip policy.
Kinda stupid, I know a few bartenders have adjusted tips on tabs for really drunk people with a large bar tab . But, most regulars at a hair salon know the cost of the service plus tip.
No apology needed, your posts are extremely informative. It sounds like you’re “in the business”. Can you elaborate on the station rental situation? If the stylists are W2 employees of the salon, why would they need to rent the station? It seems like other jobs where the employee has to buy their own uniform, although the best employers give a uniform allowance for that. Also I am guessing that uniforms cost much less than monthly rental on a chair/space in a shop!
In a tipping situation, if I pay with a credit card I tip with cash. I trust the recipient of the tip to report the income.
I recently found myself in a bar without cash in my pocket. Several people bought me drinks, and I doubt they tipped the 'tender. So, when I got my check I owed five dollars. I paid with my cc and added a $20 tip, as I’d been there a while and recieved excellent (tho free) service.
I was surprised to get an email the next day from my credit card company asking if the the tip amount was accurate. Heh.
This is one of my common gripes with dealing with small or family-run businesses. They are often short-sighted on how they treat credit cards. They are so concerned with minimizing the CC fees that they pass the hassle onto the customer. They are so worried about losing a few cents that they end up losing a customer.
In some very rare cases the product offered is good enough to deal with the hassle. I’ve been to some outstanding family-run restaurants that have been in business for decades that only take cash. But in their case, the food is good enough to deal with the hassle of finding an ATM first.
Is your stylist renting a spot from the salon? If so, maybe it’s time for her to look for another salon.
This is the main reason that tips are charged at a higher rate by the processor, much higher rates of fraud.
Close enough to “the business”, dog grooming actually (long story on how I ended up here).
Station rental happens with independent contractors. In order to be classified as an IC, you have to have your own clients. There are very strict rules on what you can and cannot do with an IC, and most places are violating those rules. It sucks for the stylist, because they have the burden not just of more taxes, but in collecting and paying them all herself. It’s actually quite a bit to keep track of. Making them pay to rent the station is just another way of screwing them over. It ensures revenue to the business, even if volume is down.
The language the IRS uses is that you need to offer your services to the general public, and having no one who tells you “what will be done and how it will be done” other than your client. They specifically state that they don’t care what the employee and employer call it, if the relationship exists, it should be taxed as an employee.
There are people out there who truly are independent contractors, that have and book their own clients, and the only relationship they have with the business they work out of is that of a landlord and billing service. I have no idea if they are a minority or majority, but I would guess the former. I would personally rather use the services of an employee rather than someone with no loyalty or relationship with the salon.
I’ve never been a big fan of making employees purchase their own uniform either, I was very surprised when I discovered that it was legal, though I still think it’s kinda shitty thing to do.