Tips: Will That Be Cash or Charge?
After a long day standing behind the chair, isn’t it nice to look into your apron and see a wad of cash from your thankful, and now stunningly gorgeous clients? In addition to receiving a regular commission, stylists also live off of tips. Even when your clients tip via credit or check, stylists typically receive their money at the end of the day.
This was the system set up in Kristy Reed’s salon. But all that changed this past year, so she raised this question: “I work at a commission salon, and I used to receive my tips at the end of the night. Then this past February, the tips I received by check or credit card are being included in my paycheck. I was curious if this is becoming a normal practice for salons, seeing how everything pays by credit or debit card 75 percent of the time. Wondering about this ourselves, we reached out to our loyal BTC following and here’s what they had to say!
Tips Every day!
Ellen Thomas Beedy feels that stylists should receive their tips at the time of service or by the end of the day. “It’s YOUR money,” she says. “If salon owners are complaining that they don’t have enough money in their registers…start having more money in there to begin with!” Shannon Ingram agrees, saying that as a salon owner, she pays tips at the end of each day. “Keep some extra cash on hand in a safe since most people pay on their cards. All salons should have a salon software program that’s keeps track of all transactions throughout the day and records when the client pays. That way the salon is not showing that as income and paying taxes on it. It’s up to each stylist what they claim, I’m not their accountant or their mother,” Shannon states.
For a unique approach to the tipping situation Tina Connelly-Jaques shares that when she worked for a franchise, she and the other stylists were actually allowed to get their credit card tips directly out of the drawer. “As a stylist, I loved this. I feel like all tips should be pocketed ‘same day’! We work hard for them,” she says. Hollie Jacques’ salon works the same way. “I work in a salon were if we are tipped by card or check, we pull the cash out of the drawer right then and there. If your salon wishes to hold your tips until paycheck, make a ledger and keep track of how much the service was, what they tipped and what you actually received on your paycheck. This will protect you just in case any discrepancies come up; then you can dispute fairly and accurately,” notes Hollie.
The Check is in the Mail
For salon owner and manager Sheila Harris-Bowman, tips are a touchy subject. “From a business standpoint, stylists need to understand the process of cash flow and deposits,” she notes. “If we provide your daily tips from credit and checks, we may run out of cash in the register. Plus, credit card charges can take anywhere from one to three days to process. If the salon does not deduct the credit card merchant fees, be grateful. Sheila agrees saying that salons should be providing a daily report or access to it of your gross charges, retail sales and tips. “It is your responsibility to double check you pay and follow-through if it is not correct. Tips must be claimed. If you do not show tip income, the IRS can and will audit you and the salon. If they do so, you will be assessed for 20 percent of your gross wages and penalties,” she notes.
Mickey Long loves this system. “The first salon I worked in, our check and credit tips went on our check and were taxed. I loved it. It was that much less work I had to do at tax time,” he shares. Salon owner Soren Rasmussen couldn’t agree more. “We started adding tips to our stylists paychecks a year or so ago…the reason being that with the lack of actual cash coming in, we were running out of cash to keep in the drawer and having to withdraw cash from our account each week to keep enough to pay out tips. This practice throws a red flag to the IRS. They may wonder why we are withdrawing hundreds of dollars each week in cash. What are we doing with all that cash? So just like the bar and restaurant business had to, we now have to put tips on paychecks and withhold taxes from them. You may not like it now, but you will the day you face an IRS audit and can show them that your tips were indeed accounted for. Like it or not it’s the way of the future,” she says.
Likewise, Connie Kay said she used to pay her staff daily, BUT as a salon owner, she has to WAIT to receive payment back, especially on a holiday weekend. It would sometimes be 4 days before the credit card companies put the money into my account. Sometimes the register would be empty paying stylists tip money at end of day. I have booth renter’s now so not an issue. P.s. The credit card company list’s tips separately and 1099’s you with services and tip amounts separately.
Cash Tip Only…Sorry for the Inconvenience
There are some salons, however, that have effectively fixed their tipping conundrum. They simply do NOT allow client’s to tip off of a credit card. So, if the clients want’s to tips their stylists, they need to remember to bring cold, hard cash with them. This effectively fixes the issue of getting your tips at the end of each day, but on the other hand, when your tips are not included on your pay stub, YOU and YOU ALONE are responsible for claiming your tips come tax season. For Rebecca Davey, the idea of forcing her clients to bring cash for a tip is crazy. “I would never expect my client to waste their time and incur extra service fees from the ATM to give me a cash tip. That’s so rude,” she exclaims. On the opposite end of the spectrum is Maryann Hough, who says that what she has done is talked with her client’s and said, “If you don’t mind, from now on, I’d appreciate it if you could use cash for my tips. It’s easier for me.” According to Maryann, this system has worked very well for her.
Similarly, Melissa Agosta said she recently stopped adding tips to credit cards. Instead, her salon added an ATM machine. “Tips are put in little envelopes by guests and paid out two times a day. Guests pay via cash or check,” she says.
Regardless of what camp you’re in, everyone wants to receive what they have earned. If your salon does know allow client’s to add a tip to a credit card, make sure there is appropriate signage posted so that your clients don’t have to be embarrassed if they don’t have cash on them. As long as the client knows the system in advance, they will bring cash to tip. And though there is a level of comfort and convenience to having taxes taken out of your tips because they are included in your pay, keeping track of your tips on your own is never a bad thing. If anything, it helps keep track of what you’re making in tips per day, per week and per month.