Many salons and spas have a commission-based pay structure consisting of commission only pay (typically 50% of gross receipts). However, as states like California are beginning to frown upon the commission-based pay model and restrict independent contractors, it’s probably time to revisit the way you pay your staff. Lets take a look at the pros and cons of “team-based” pay and give you some ideas for creating a new pay structure that works for your salon or spa.
What is “team-based” pay?
In short, team-based pay is an hourly or annual salary system. Some team-based pay structures may also include raises and bonuses that are tied to the success of certain team goals, emphasizing your employees’ contribution to the bottom line of the salon or spa rather than focusing on their individual numbers.
Pros of team-based pay
- Motivation. Not everyone is motivated by money and not everyone is good at being a salesman. Creative and skilled service providers may be passionate about their work and the products they use but when it comes to “selling” those products, commission incentives give many stylists, therapists and technicians the choice to simply opt out if they do not feel comfortable pushing the sale. Team-based pay can make colleagues feel additional social pressure to meet team goals so they won’t be seen as a weak link by their peers.
- Productivity. Team pay allows your salon or spa to reward each individual’s overall performance and contribution to the company by rewarding aspects like good attitude, high client retention, retail recommendations and sales, and consistency. As an owner, you probably obsess over open slots in your appointment book…. team-based pay helps your bottom line by making your whole team obsess like you do.
- Payroll. As a business owner, you need to control your payroll expense percentage…but you can’t control a commission-based payroll. As the cost of doing business rises, straight and sliding scale commission are not sustainable long term. Team-based pay lets you control your payroll expenses.
Cons of team-based pay
- Competition. If your employees are not motivated by money or social pressure, they may be motivated by competition. Although team-based pay can help alleviate some tension that may arise between employees in a competitive setting, it can also eliminate the motivating effect of competition (unless work teams compete against other work teams).
- Free Riders. “Free rider” refers to an employee who simply collects a paycheck thanks to the hard work of other employees. A potential disadvantage of team-based pay is the potential for some low performing team members to free-ride on the work of other members and reduce the motivation of the group.
- Retention. Some salon and spa owners claim that changing from commission to team-based pay had some of their best talent ready to quit. Others found they were paying out more than 50% of the average service price in salary payroll costs just as they had with their commission structure, but commissions were more evenly distributed among those who worked very hard and those who were just getting by. Changing to team-based pay may result in your top performing employees leaving because they can no longer set the amount of their paycheck based on their performance.
Pay structure ideas
So what kind of pay structure should you have? Most experts recommend a hybrid system of salary plus incentive pay. To determine the best structure for your business, start by using your software’s unlimited reporting to understand your numbers (i.e. average ticket sales, gross receipts, retail sales, etc.) and use your fortune teller to forecast how each of your employees are predicted to perform and what kind of business they generate for your salon or spa. After your numbers are reported, determine what salary you can afford to offer and what add-on incentives will encourage behaviors that your salon or spa would like to reinforce (i.e. customer satisfaction, client retention, referrals, goods sold, etc.).
Here is one example of a salary plus incentive pay structure:
(courtesy of Melinda Minton, president of Minton Business Solutions and founder of The Spa Association)
• Base pay of $7 for hours worked or “on the clock.” (remember CA requires double the minimum wage before you pay commissions, or you’ll have to comply with the piece-rate law!)
• Commission pay of 20% for services performed.
• Additional commission pay of 10% for add-on (or “upsell”) services that are not a part of the original appointment.
• Retail sales commission that varies from a base of 5% up to a 20% rate for private label items or those products that have a higher profit margin.
• A quarterly review process that examines subjective matters (i.e. leadership skills and attitude) alongside objective performance (i.e. average ticket and retention rates) to give the employee an overall assessment of where she stands compared to other employees.
• A group review of accomplished goals for the entire salon or spa. Allowing the team to set future goals and the means by which they are measured is a wise empowerment tool that allows for increased ownership of responsibility and enhanced overall performance.
Conclusion
Regardless of the pay structure you choose (commission or salary based), be sure to include incentives that measure specific skill sets, behaviors, and tracked goals to help keep your business moving forward.
