Owner / Contractor arrangements for renting chairs
Salon owners renting out chairs in their salons is now a widely-practiced arrangement. It makes a lot of sense for both the owners and the contractors.
The advantages and disadvantages have been covered in a number of blogs available through a quick search on Google. What hasn’t been covered in as much detail are the implications of failing to establish a clear relationship between the owner and contractor. Especially from a financial risk perspective for the owner.
There is also limited information out there about available cloud solutions that help support a genuine owner / contractor relationship.
Why establishing a clear relationship is important
There have been several court decisions recently regarding the so called ‘gig economy’. This has helped to highlight the importance of establishing the nature of the relationship between an owner and a contractor.
The case brought against Uber by its contractors has been widely covered in the media. The court declared that the contractors were in reality working under terms expected to apply to an employee. This is despite the contractors being registered as self-employed.
This means that Uber may be forced to pay its contractors basic employment rights, such as national minimum wage, holiday pay. Plus they may need to make National Insurance contributions on their behalf. Not only in the future, but potentially retrospectively.
Let’s hope they’ve been putting some money away for a rainy day…….
It is possible then, that similar arrangements in the salon industry may come under scrutiny at some point in the future.
Advantages & Disadvantages
All the above sounds a bit scary from the perspective of a small business owner, so lets’ briefly re-cap some of the pros and cons for a salon owner in entering an owner / contractor relationship:
- Save Money – the salon owner does not need to pay sick, holiday or maternity pay. They are not required to pay National Insurance. Plus, rather than paying an employee wage, they receive income from the contractor
- Employment Law – as the contractor is self-employed, the owner is not bound by any legal dismissal procedures. They would however still need to adhere to the terms outlined in the contract of service
- Motivation – as the self-employed individual is working for themselves, it would make sense that it is in their own best interest to work hard to bring in money
- Loss of Control – the contractor must be allowed to work their own hours. The owner is also less able to manage behaviour, so things like attitude and the cultural fit of the contractor needs to be considered. Also, the owner will want to look after the reputation of the salon
- Competition – the contractor may decide to leave the salon and start their own business. There is also the risk that they may take their clients with them
As legal decisions are ongoing regarding these types of relationships, it’s not possible to say with absolute certainty what arrangements would protect the liability of the owner. The items below however provide an example of arrangements which are characteristic of a genuine owner / contractor relationship:
- Each party is responsible for the finances of their respective businesses
- Each party maintains their own accounting records and tax returns
- The contractor has the freedom to decide their own price structure and times of opening
- Where possible, each party has their own insurance
- The contractor has the freedom to purchase any products they wish to sell
- The contractor has the freedom to pursue business outside of the salon
- Separate client lists and appointment books are maintained for each of the contractors
- Arrangements are in place for the payment of rental/commission fees, and transactions are supported by clear records
- The contractor owns, and is responsible for their own equipment
How cloud software can help
On the face of it, trying to implement all the arrangements above sounds like a bit of a nightmare. But there are tools out there that can help!
For small businesses owners, cloud solutions can make all the difference to the efficiency, and ultimately the success of their business. They apply particularly well in helping to support owner / contractor arrangements.
Cloud Solutions for Salons renting chairs
Take Xero for example. Xero is accounting software which allows clear tracking of sales income and fee payments. For the purposes of HMRC, these two elements cannot be added together. That is why it’s important that they are accounted for properly, and recognised correctly by the owner and contractor. What could otherwise be quite a painful exercise, is made much simpler by the availability of accounting software.
Point of Sale software is also pretty crucial. The ability to track detailed sales for different contractors is obviously important. Without this it would not be possible to determine the sales and fees payable between the owner and contractor. Solutions like eposnow are made for such requirements. As well as offering a wealth of other useful features for any retail business, like stock management. Eposnow also works really well with Xero, which again makes keeping and maintaining accurate accounting records much easier.
The challenge of maintaining separate client lists and appointment books for each contractor is made easier by apps like Appointedd. Separation not only helps support the argument that the contractor is a distinct business to the salon. But it also helps to protect the salon owners customer database, should the contractor leave in the future. Appointedd also integrates with eposnow, helping to provide an end to end cloud based solution for the salon owner.
Come and talk to us
The decision to take on an owner / contractor arrangement is not without its challenges. But that is why choosing the right software and seeking expert advice can make all the difference.
Our vision with Chilli Accounting is to help small business owners find the most appropriate cloud based solutions for them. We also offer everything that you’d normally expect from an accountant. It’s all about making your life as easy as possible!
If you there is something that you need help with, then get in touch.