Salon payroll with commission, hourly pay and tips

This is a practical outline, not tax or legal advice. Wage rules differ by state, so check yours — or ask your payroll provider — before relying on any of it.

1. Start from the written pay plan

For each person, the plan should say which of these apply: an hourly rate; a commission rate on services; a separate rate on retail; any bonuses; and whether they are paid hourly plus commission or the higher of the two. If that isn’t written down, start there — the commission agreement checklist covers what to include.

2. Work out commission from the POS report

Take each person’s sales for the pay period from the point-of-sale report, after discounts and refunds, and before tips — tips are never commissionable. Apply the rates from the plan, and keep services and retail on separate lines.

3. Check minimum wage week by week

Under federal law, minimum wage is checked for each workweek, not for the month: a commissioned employee’s pay for the week, divided by the hours worked that week, has to reach the minimum wage — $7.25 an hour federally, and higher in many states. A strong month can still hide a slow week that falls short. If it does, the difference has to be made up.

Paying the higher of hourly pay and commission each week handles this automatically, which is one reason many salons use it for newer staff.

4. Overtime still applies

Hours over 40 in a workweek generally need overtime at one and a half times the employee’s regular rate — and commission counts toward that regular rate, so it isn’t just the hourly wage. Some salons qualify for an exemption for commissioned employees of retail or service businesses (section 7(i) of the Fair Labor Standards Act), which generally requires that more than half the employee’s pay comes from commission and that their regular rate is more than one and a half times the minimum wage. Check it applies before relying on it.

5. Tips go to the employee

• Tips belong to the employee. The salon, its owners and managers can’t keep any part of them.
• Card tips are paid through payroll. Federal rules allow deducting the card fee on the tip itself, in proportion; several states don’t, so check before taking anything.
• Tips are taxable wages. Card tips and the cash tips employees report go through payroll for income tax, Social Security and Medicare.
• Tip credit — counting part of tips toward minimum wage — is allowed in some states and not others.

A worked two-week pay period

A stylist is paid the higher of $15 an hour or 45% of service sales each week, plus 10% on retail, plus their card tips:

Over the two weeks: $720 + $450 = $1,170, plus 10% on $300 of retail ($30), plus $260 of card tips — $1,460 gross before taxes and withholding.

Comparing over the two weeks together instead would have paid commission of $1,035 (it beats $930 of hourly pay) — $135 less — and week 2 on its own would have worked out at $10.50 an hour, below the $15 the plan promises. Write down which period the comparison uses; weekly matches how minimum wage is checked.

What to give your payroll provider

For each person, for each pay period:

• Hours worked, week by week
• Hourly or guaranteed pay
• Service commission and retail commission, as separate amounts
• Bonuses, each named
• Card tips, and the cash tips they reported
• Any adjustment — a refund or correction — with the reason

Give the employee the same breakdown on their statement — see the commission statement examples.

Where CommissionBoard fits

CommissionBoard isn’t a payroll service. It works out the commission side — services, retail, goals, tiers and bonuses — from your POS report, shows each person their figures on their phone during the month, and gives you a PDF or CSV report with each line to hand to whoever runs your payroll. See how it works, or compare commission and hourly pay.