Posted by Amelia Abbott on 27 November 2019
If you’re working in the hair salon industry, you’ve probably heard of Rent-A-Chair Agreements.
Under a Rent-A-Chair Agreement, a salon can engage a hair stylist as an independent contractor, allowing them to manage their own clients out of the salon.
Basically, these agreements allow a stylist to run their own business through someone else’s salon.
In return, the stylist gets to rent a chair and pays the salon owner. This could be on a commission basis (a percentage of their earnings) or an amount attributed to rent.
Although Rent-A-Chair Agreements are growing in popularity and can work out well for both sides, they can be complicated and difficult to navigate.
But don’t stress! Whether you’re a salon owner or a stylist, we’ll guide you through everything you need to know if you’re considering entering into a Rent-A-Chair Agreement!
A Salon Owner’s Guide to Rent-A-Chair Agreements
As a salon owner, Rent-A-Chair Agreements are great if you’re looking to add depth to your available stylists without employing additional staff. Having an extra stylist on hand broadens the client base your salon can serve.
But it’s not as simple as clearing out space for an extra chair in your salon!
Below are some key points you’ll need to be aware of if you’re considering Rent-A-Chair Agreements as a salon owner.
When entering into a Rent-A-Chair Agreement, your first consideration as a salon owner should be whether you’ll treat the stylist as an independent contractor or as an employee.
This has serious consequences if you get it wrong, so it’s important you’re informed and don’t fall foul of the “sham contracting” obligations under the Fair Work Act.
This isn’t something you can just sweep under the rug. The Fair Work Ombudsman frequently investigates Rent-A-Chair arrangements to make sure salons and beauty parlours aren’t engaging in sham contracting.
So, how can you protect yourself?
Basically, you’ll need to limit your control over the stylist and ensure you’re treating them as a contractor, not as an employee.
If you structure your payment arrangements with the stylist as if they’re an independent contractor (i.e. you don’t pay superannuation or leave), but treat them like they’re an employee (i.e. you control what they do and when), you’ll risk incurring significant fines and penalties for sham contracting.
Sham contracting is a complicated issue, and there are a number of factors a court will consider when determining whether a staff member is an employee or contractor.
To help you handle these arrangements properly, you can read about the differences between independent contractors and employees here. Of course, be sure to seek legal advice if you’re unsure!
Entering into a Rent-A-Chair Agreement can complicate things between you and your landlord.
This is because renting out a chair might be considered as ‘subleasing’, which may be restricted under the lease agreement with your landlord.
So, before you enter into a Rent-A-Chair Agreement, it’s important to review the terms of your lease to confirm that this is something you’re actually allowed to do!
Your lease may require landlord approval to sublease of any part of the space. Alternatively, subleasing may be totally prohibited.
You can try to negotiate a position that gives the landlord a small incentive for approving the sublease, or speak to a lawyer about how to proceed.
Brand and Client Experience
Moving to more commercial considerations, maintaining a consistent client experience when you have independent contractors working within your salon can be a challenge.
While you can require that your employees wear a uniform and follow particular processes to deal with clients in a particular way, independent contractors don’t necessarily have to follow these same rules.
As a result, you may run the risk of delivering an inconsistent brand and client experience, which may damage your salon’s reputation.
Independent contractors generally bring their own tools, products and equipment.
So, in the case of Rent-A-Chair Agreements, contractors don’t necessarily have to use the products your salon uses.
If your salon has a distribution partnership with a particular brand, you should let this brand know if independent contractors are using other products in your business.
And, if the stylist wants to use your products, you could charge them additional costs to do so. Always remember that these stylists run separate businesses.
Day to Day Functions
Independent contractors have a lot of freedom over the way they work.
They can choose their own hours, decide how many clients they want to take on, and are under no obligation to accept work you give them.
This isn’t necessarily a bad thing, but it could introduce a bit of uncertainty into your salon’s operations.
To establish some certainty, your Rent-A-Chair Agreement could stipulate that the contractor must work during general salon opening hours.
However, to avoid the risks of sham contracting, you’ll need to be careful about how much control you impose under the Rent-A-Chair Agreement.
If giving up this level of control concerns you as a salon owner, you may want to think about hiring a casual employee instead.
On the other hand, not having this control may also be one of the biggest incentives for entering into a Rent-A-Chair Agreement — you don’t have to manage an independent contractor and can dedicate more time to other areas of your business.
Strictly speaking, booking facilities and payments should be handled separately (i.e. with separate Eftpos machines) by independent contractors as, at the end of the day, they are running their own businesses and are responsible for managing their finances.
This brings up clear practical considerations – such as administrative costs.
You may want to consider the time you’ll spend managing the payment arrangements when you consider how much you earn from the stylist.
If you have particular techniques or styles that you want to keep consistent throughout your salon, engaging contractors could threaten this.
As an employer, you’re able to ensure all your staff are trained in a certain way, and perform services following particular processes and packages.
To maintain some consistency, you could explicitly require in your Rent-A-Chair Agreement that contractors are to be competent in certain styles.
What’s The Gist?
Overall, there are two key legal risks salon owners should be aware of when it comes to Rent-A-Chair Agreements: sham contracting and subleasing.
Additionally, as outlined above, there are some key commercial considerations that may affect your operations.
If you think Rent-A-Chair is right for you, you can speak to a lawyer about a Contractor Agreement with Rent-A-Chair provisions.
A Stylist’s Guide To Rent-A-Chair Agreements
If you’re a stylist, being a contractor may seem like an unconventional way of working. There are many benefits, as well as risks, associated with being your own boss.
As a contractor, you’re somewhat of a ‘free agent’. But with this freedom comes significantly more risk and personal expense than you’d experience if you were an employee.
What Are My Entitlements?
Being hired as a contractor means you’ll no longer be entitled to many of the benefits available to an employee.
Importantly, you aren’t entitled to receive paid leave, superannuation, and several other entitlements (read about them here).
You are also responsible for managing your own payment systems, invoices and clients.
Although most people welcome the freedom associated with running your own business, it’s crucial to remember that you won’t get paid leave and will only get paid by your clients.
Do I Need Insurance?
As an independent contractor, you should always get your own professional liability insurance and personal injury insurance.
If you are using and/or selling your own products through your business, it’s also a good idea to have product liability insurance, too.
Insurance brokers can help you to bundle appropriate industry insurance. Insurance obviously comes at a price, so you should factor these costs into how you structure your payment arrangements with the salon.
As a contractor, you typically bring with you whatever tools and equipment you need to complete the job; everything from scissors to blow-dryers to treatments and dyes.
Bringing your own products to work can be quite expensive, and you may be competing with the other products available in the salon.
Some weeks, it may be that you don’t make enough to offset the cost of buying your own products for your clients.
This is a key risk associated with being a contractor. To protect yourself, you may want to set up an agreement with your suppliers where you are not bound to purchase any particular quantity of products.
Should I Share Clients With Other Stylists?
Once in a while (or maybe often!) a client will want to make an appointment but you can’t see them for weeks. What do you do?
The client may want to use other staff in the salon out of convenience. This is probably better for you than the client going to another salon.
It’s important that you come to an understanding with the other stylists on how to share clients, as well as any profit share that may apply.
What’s The Gist?
With great freedom comes great responsibility!
Being a contractor can be a fantastic arrangement, allowing you to work how you want, when you want.
But it also comes with additional responsibilities, costs and risks.
The best thing you can do to protect yourself and your business as an independent contractor is entering into a comprehensive Rent-A-Chair Agreement with the salon owner.
What Needs To Be In A Rent-A-Chair Agreement?
A Rent-A-Chair Agreement should cover things like the type and standard of services the contractor will perform, insurance requirements, confidential information, indemnities and termination provisions.
Depending on your situation, this agreement may also need to reflect some industry specific-items — such as sharing products, sharing clients, and sub-lease obligations.
Broadly, Rent-A-Chair Agreements are pretty similar to traditional contractor agreements. However, as mentioned earlier, the key difference is how the payments are structured.
The payments could be structured in a number of ways. For example, you might consider:
- Fixed Rent: meaning the stylist pays the salon owner a set portion of rent on a periodic basis;
- Commission Percentage: meaning the salon owner takes a commission from the stylist’s earnings from clients;
- Pay Per Use: meaning the stylist pays a set amount each time they use the salon; or
- A combination of any of the above (e.g. a small rent and a commission).
Each payment structure has risks and advantages that are different for stylists and salon owners.
For example, the certainty of fixed rent for a salon owner is risky for a stylist if they don’t see enough clients to cover the costs of rent.
When considering how to structure your payments, think about what level of certainty and flexibility you require and talk to a lawyer about the best approach for you.
What To Take Away
Before you enter into a Rent-A-Chair Agreement, it’s important to stop and think about how you should structure your relationship with the stylists or the salons you work with.
If you’re engaging or working as an independent contractor at a hair salon, then it’s essential to put a Rent-A-Chair Agreement in place.
These agreements come with risks for both salon owners and stylists.
However, Rent-A-Chair Agreements can be mutually beneficial if you share financial risk.
Getting the key details agreed upon in writing will not only protect the parties involved, but will save both sides a lot of day-to-day hassles and confusion down the track.
Get In Touch With Us
If you need help figuring out whether an independent contractor relationship is right for you, or if you’re ready to put together a Rent-A-Chair Agreement, we’re here to help!
Get in touch with our team at 1800 730 617 or firstname.lastname@example.org.