Danger Could Be Closer Than You Think
If you think the IRS should be your only focus, you are wrong. Beyond proper reporting and IRS compliance, you must first implement proper tip procedures in your salon. Employee lawsuits can have just as much, and sometimes more, impact on your bottom line than the IRS.
After a conflict over non-compete agreements with three stylists turned into a legal battle over credit card tip fees, Oliver Steinnagel, owner of Oliver’s Hair Salon in Kansas for more than 20 years, learned a hard lesson.
The stylists sued for the withholding of an administrative fee from credit card tips. Although salon owners are allowed to recoup the fees associated with credit card transactions, that amount is limited. As of May 2011, employers can only withhold the amount charged by the credit card company. Oliver didn’t know about this new law and after three months gathering documents and hiring a tax attorney, Oliver repaid the difference to all staff. “The suit to date has cost us over $40,000. What a lesson!”
The Silver Lining
Is the whole idea of salon ownership sounding grim? It doesn’t have to be. Staying informed on current laws and educating your staff on the importance of proper tip reporting is fundamental to protecting yourself from audits and lawsuits.
Kendall Ong, owner of Mane Attraction in Arizona, makes education of his staff a priority. Adamant about incorporating tip reporting education into his training program, stylists are told how and why they are required to report tips. Compliance is discussed with each employee.
“Our job as owners is to look after the well-being and future of our employees. It elevates the industry and it’s the ethical thing to do.”
It’s not always easy to do the right thing and be compliant with tax laws. But, if you’re passionate about the industry and the future of your employees, you can lead by example.
“We pay approximately $12,000 - $15,000 in payroll taxes on tip income every year. With the passage of the FICA Tip Tax legislation, this money could be reinvested into our salon and staff,” expressed Kendall. “The long term benefits of compliance are that we will see our industry grow.”
Myra Irizarry is the Director of Government Affairs for the Professional Beauty Association (PBA)