Several years ago, the payment structure for numerous salon and spa employees was turned on its head, as these salons and spas faced liability for paying employees a commission when they were not involved in sales. (See Sahara Pynes’ blog post on this topic, The Ugly Side of Salon & Spa Compensation)
Salons and spas faced liability for the following compensation structures:
(1) Paying commissions to employees who were not selling goods or services; and
(2) Paying by piece rate (e.g. per treatment or service), which is a complicated payment structure to comply with due to requirements related to payment for nonproductive time, and specific requirements for paystubs.
These payment structures, often done incorrectly, also implicated additional wage and hour issues, such as failure to pay minimum wage and overtime payments, and failure to properly pay meal and rest breaks.
Labor Code Section 204.11 added a layer of complexity by changing the definition of the term “commission” in this context. The Code specifies that wages paid to employees who are licensed under the Barbering and Cosmetology Act, and provide services for which such a license is required, are commissions only if: (1) the employee’s base hourly rate is at least two times the state minimum wage in addition to commissions paid; and (2) the employee’s wages are paid at least twice during each calendar month on days designated in advance by the employer as regular paydays.
Pre-litigation demands and actual litigation slowed during the pandemic when spas and salons were largely closed. With the re-opening of salons and spas back to their full capacity, this begs the question: what is presently the best compensation structure for spas and salons? As always in the law, it depends. Below are three payment options:
- Option 1: Rather than pay on a commission basis, salon and spa employers can pay their employees an increased hourly rate. This increased hourly rate could be based on a blended rate depending on the treatments offered. In this manner, there would be no commission structure.
- Option 2: Pay the employee 2x the California minimum wage plus agreed upon commission. Spas can choose to pay by California’s permissible commission structure, which requires complying with Labor Code Section 204.11, and having a signed commission agreement.
- Option 3: Spas can pay by piece rate, in compliance with Labor Code section 226.2
If you operate a spa in California, take note. Otherwise, the resumption of full services post pandemic will also mean the resumption of new wage claims.
This post provides general information and does not constitute legal advice to any person with respect to any circumstance. This post does not create an attorney-client relationship with any person.