Setting Up Commission Structures: Legal Tips for Salons, Spas, and Barbershops in British Columbia

Setting up a commission structure in your salon, spa, or barbershop involves understanding legal guidelines and choosing the right approach for your business. Here’s how to do it right, with insights from legal precedents.

Setting up a commission structure for your salon, spa, or barbershop staff can feel like a balancing act. You want to reward your team fairly for their hard work, but you also need to ensure you’re compliant with the rules and regulations in British Columbia. Let’s walk through two main approaches you might consider when structuring commissions, with an emphasis on how legal precedents shape these options.

The Straightforward Approach: Sales Price-Based Commission

One of the simplest ways to structure commissions is to base them directly on the sale price of services or products. According to British Columbia’s Employment Standards Act, employees should be paid based on the sale price, meaning no deductions for costs like products or equipment should be made from their commission.

For instance, if a stylist performs a service priced at $100 and they earn a 40% commission, they would receive $40—no strings attached. This method is straightforward and aligns with the minimum standards set by the law, ensuring that your employees receive what they’ve earned based on the agreed percentage of sales.

The Alternative Approach: Gross Revenue-Based Commission with Product Cost Deductions

However, there’s another option that might better suit the financial realities of running a business: calculating commission after deducting certain business costs from gross revenue. Here’s how it works:

This method, while slightly more complex, has legal backing in British Columbia through specific case law, particularly the Richard case. (Find the legal advice detailing the Richard case from KSW lawyer Chris Drinovz below).

In Richard, a stylist was primarily paid through a commission based on gross income. The salon deducted the cost of products used during services from the gross revenue before calculating the stylist’s commission. The stylist argued that these deductions violated the Employment Standards Act, which prohibits wage deductions that pass business costs onto employees.

The British Columbia Employment Standards Tribunal ruled in favor of the salon, clarifying that as long as the deductions were made from gross revenue (the total income before commission) and not directly from the stylist’s wages, the practice was legal. The tribunal noted that employers are allowed to determine the structure on which commissions are based. The ruling established that employers can deduct the cost of goods or products from gross revenue before calculating commissions, provided this structure is clearly outlined in the employment agreement.

This approach allows businesses to manage expenses while still providing a fair commission to employees. However, the method must be transparent and documented in a written agreement to ensure compliance and fairness.

The Crucial Element: A Written Agreement

Regardless of which approach you choose, the most important thing is to have a clear, written agreement with your staff. This agreement should detail how commissions will be calculated, whether any costs will be deducted, and when commissions are payable. A written agreement helps prevent misunderstandings and protects both you and your employees by laying out the terms clearly.

A simple agreement can be completed or reviewed by a lawyer. As a member of the BeautyCouncil, you can arrange a free 20 minute consultation with KSW here.

Proceed with Caution: This Isn’t Legal Advice

While these two approaches offer flexibility, it’s essential to remember that this blog post is not legal advice. The legal precedents mentioned, such as Richard, offer guidance but may not cover every possible scenario. Before implementing any commission structure, you should consult with a legal professional to ensure compliance with all applicable laws and regulations. Every business is unique, and what works for one may not work for another. If you are a member, you can book a 20 minute consultation with a Chris here at no cost.

By carefully considering these options and getting everything in writing, you can set up a commission structure that rewards your team while keeping your business running smoothly.

Want more tips on managing your salon, spa, or barbershop? Join our community at BeautyCouncil for expert advice, resources, and support.

See the full legal advice document from KSW Lawyers below