| One of the most important components between a | | | | Renters is that they want to be Booth Renters for |
| Booth Renter and Salon Owner is the contract. | | | | tax purposes but they want to be Employees when |
| Deciding which one is right for the both of you is | | | | it comes to advertising, how things are run and |
| crucial in today’s mix of insurance audits and | | | | getting new business. As a Booth Renter, you are |
| lawsuits. As an Independent Contractor or Salon | | | | responsible for paying estimated quarterly taxes. |
| Owner, one of the first things you will want to have | | | | Instead of paying your tax debt by April 15, Booth |
| is a contract. Why? Oftentimes either the stylist, nail | | | | Renters need to make four payments, one for each |
| tech or Salon Owner hasn’t made all of the | | | | quarter of earnings. Salon Owners should make sure |
| provisions for a proper set-up, which can lead to a | | | | that all Renters get a Form 1099 at the end of the |
| run-in with the IRS. As a Booth Renter, by paying a | | | | year, which is another way to prove that even on |
| flat rent to the Salon Owner, you are essentially | | | | their taxes, they’re agreeing that they’re |
| running your own Business. In the eyes of the IRS, a | | | | renting space from you. |
| Contract or Written Agreement must adhere to | | | | Coming to Terms and Compensation |
| State and Federal Statutory Code. Although a | | | | The Compensation Section should include the Amount |
| Contract doesn’t have to be overly complicated, | | | | of Rent that is to be paid each month, or as in some |
| it must clearly spell out each parties’ rights and | | | | cases, each week. One of the most important |
| responsibilities. A Written Contract should specify the | | | | sections is the terms of the Contract. The terms |
| working relationship between the Independent | | | | should clearly outline how long the Contract is for. |
| Contractor and the Salon Owner. The most common | | | | It’s advised to secure one for at least six |
| resource for drawing up Contracts is a Consultant or | | | | months to a year. I highly recommend that the |
| Lawyer. However, some Salon Owners and Landlords | | | | shortest period of time in a Contract be month to |
| choose to do it themselves. | | | | month, just like renting an apartment. This means |
| Former Booth Renters who have become Salon | | | | that the rent would be paid monthly at the first of |
| Owners have an advantage when it comes to | | | | the month. However, the best scenario would be to |
| drawing up Contracts for Booth Renters. Lawyers | | | | have a Lease for at least a one-year period. In order |
| really don’t know a whole lot about this Industry. | | | | to distinguish the Landlord and Booth Renter, it’s |
| You really should send your contract to a Tax | | | | necessary to list how Rent is paid. Both IRS and |
| Attorney for review. You want to be protected. | | | | State Agencies consider it crucial how Rent is paid. |
| Since common areas are often left out, which can | | | | For auditing purposes, the Salon cannot accept the |
| result in failing an audit, I suggest using a Consultant | | | | Booth Renter’s Client checks as Rent payment. |
| to draw up the Contract. Consultants can advise you | | | | Salon Owners should only collect rent from the Booth |
| on Booth Renting and Employee relationships and also | | | | Renter. Also, Booth Renters have to collect their own |
| show Salon Owners how to be more profitable | | | | money for services rendered. To comply with both |
| above collecting base rent. With 95% of all Nail Techs | | | | State and Federal guidelines, every Booth Renter |
| in the United States operating as Booth Renters, it is | | | | must keep a cash bag and enough change on hand |
| imperative that a Business Owner have a good valid | | | | to accommodate his/her Clients. |
| Contract between them and the Booth Renters. | | | | Insurance |
| The most common mistake made by someone | | | | Although the Contract you choose is at the Booth |
| drawing up their own Contract is that it may not be | | | | Renter and Salon Owner’s own discretion, this |
| clear when it comes to Employee and Employer | | | | will be the section that the IRS and State Agencies |
| relationship guidelines. The IRS doesn’t want to | | | | will look at first. You’ll want to have clearly |
| see any inclination that the Booth Renter is an | | | | defined provisions to protect your assets. A Booth |
| Employee. What they want to see is a Lease that is | | | | Renter will want to have his/her own Insurance |
| similar to that of a Landlord/Tenant Lease. | | | | Policy, including both Liability and Professional |
| Unfortunately, most Stylists, Nail Techs and their | | | | Coverage. In case of the unforeseen, a policy will |
| Owners do not have a Contract or Lease, let alone | | | | protect you. If Clients injure themselves in the Salon, |
| one that is signed. That is why 90% of all people | | | | both the Salon Owner and Booth Renter can be held |
| operating under these guidelines could not pass an | | | | responsible. The Contract should clearly state that |
| audit today by either the IRS or their State. | | | | the Booth Renter needs to supply a copy of his/her |
| Having a Contract that specifies that the Operator is | | | | Liability Insurance prior to the first day of work and |
| responsible for paying taxes and that he/she pays a | | | | that the Insurance needs to be active throughout |
| flat amount of rent is not enough. Most Salon | | | | the entire rental time. A smart option is to state in |
| Owners and Operators think that if an Agreement | | | | the Insurance clause that the Booth Renter, at his |
| says the Operator is responsible for paying taxes and | | | | her expense, shall maintain Public Liability Insurance |
| paying rent, the Business Owner is free and clear of | | | | — including Bodily Damage and Property Damage. |
| responsibilities. Nothing could be farther from the | | | | Alternative Conditions |
| truth. The IRS and State are looking to see who is | | | | Tools and Supplies |
| responsible for the payment of taxes. This tax | | | | In most cases, Booth Renters are required to supply |
| payment will be determined from who has control of | | | | all of the Tools and Products necessary to perform |
| what as related to the two parties involved. The | | | | Services. You can incorporate a Clause into the |
| Contract, or the lack of it, will make a determination | | | | Contract that states this. Booth Renters are also |
| on issues that a large percentage of Contracts do | | | | responsible for generating new Clientele and |
| not cover and an Owner or Booth Renter does not | | | | advertising their Services. However, Booth Renters |
| even know until after the fact. These are just some | | | | and the Salon Owner may choose to do this |
| of the items that need to be incorporated into a | | | | together. |
| Contract to protect both parties. For example, the | | | | Consider Your Options |
| Contract needs to include a section that clearly | | | | Whether you choose to write your own Lease for |
| outlines who the Agreement is between. Often, | | | | your Booth Renter or have a Lawyer or |
| Contracts only list the Salon Name and then list | | | | Management Company do it for you, remember that |
| "Booth Renter" and not the Booth Renter’s | | | | there have been very few cases where a Contract |
| name. | | | | was taken to Court simply because an issue was left |
| Who’s Involved | | | | out. In most cases, an audit will come from a Salon |
| The first section should clearly state whom the | | | | Owner and Booth Renter that have no Contract at |
| Rental Agreement is between. Basic information | | | | all. In most of these cases, usually the Salon Owners |
| should include the day, month, and year, the Name of | | | | will lose because the lack of a valid Contract usually |
| the Salon or Landlord, and the Name of the Renter. | | | | points in the direction of the Booth Renter being an |
| A predominant issue that a Government Agency | | | | Employee of the Salon Owner. When it comes to a |
| would look at during a status classification audit is if | | | | Contract, be sure to have a Consultant review it, |
| the Contract describes a Landlord/Tenant relationship. | | | | whether it was just drawn up or it was an existing |
| Your Booth Rental Agreement should have a clear | | | | Contract. Remember, a Contract is the first thing |
| definition of who the "Lessee" (or Booth Renter) is | | | | that the IRS will want to review. |
| and who the Landlord (or Salon Owner) is. It should | | | | For more valuable information about Booth Rental |
| also list the Salon Name and who the Booth Renter is. | | | | Agreements and other topics relevant to the Salon / |
| Instead of outlining the length of the Contract, the | | | | Spa Industry, please visit SalonCreators.com, |
| Contract should clearly state that the Booth Renter is | | | | BeautySalonSecrets.com and Beauty Salon Secrets |
| solely responsible for any and all taxes due to the | | | | Blog. |
| State and IRS. The only problem I have with Booth | | | | |