The issue concerning independent contractors, franchise suites, and booth rentals in the beauty profession.

Combating the Underground Economy

 

To whom it may concern:

You may not be aware of the widespread practice of booth rentals’ and independent contractors’ issues in the hair salon industry, not only in California, but also throughout the United States.

Although many states such as Pennsylvania have outlawed and addressed this growing problem, the state of California has not yet taken a stand on it. It is probably easier to monitor the salon than chase independent contractors.

Booth rental is the practice in which salon owners ostensibly operate their businesses as if the hairdressers are independent contractors, whereby the salon owner can avoid paying payroll taxes, liability insurance, workers compensation, avoid tip compliance, and, and now minimum wage and overtime mandates violating workers’ labor law  rights.

In reality, most salon owners are knowingly and unknowingly doing the following:

Most booth rental salon owners are misclassifying their workers because of the vagueness and gray area of the law, which is not being addressed or clearly defined by our government agencies and their taxing and enforcement agencies.

Many salon owners, through no fault of their own, are being penalized due to a lack of clarity on independent contractor guidelines.  In addition, due to lack of business management skills and lack of information on contract law, many salon owners are under the misconception that they are complying with the E.D.D. and I.R.S. guidelines. This vagueness of the law is creating a climate  and a temptation to commit tax evasion, violate minimum wage and overtime compensation, sick leave mandates, tip compliance, paid vacation mandates, not only by salon owners, but also by hairdressers who are booth renters.

 

Many salon owners and hairdressers are accepting only cash which allows them to understate their true income. Ignoring these loop holes and tax compliance laws is also promoting the temptation for tax evasion and labor laws that are violating employee rights as well.

The temptation for non-compliance of their tax responsibility and employee labor laws is being compromised, cheating not only the tax agencies, but punishing hard-working tax payers throughout the United States and penalizing hard-working salon owners who are following the law. Basically they are being penalized for honesty and paying their fair share of taxes.

This type of behavior is cheating legitimate taxpayers who are losing government services due to declining revenues by our government agencies.

This circumstance punishes well-intentioned legitimate salon owners who think they are following the law, but are unknowingly misclassifying their workers and losing audits by our taxing agencies due to this gray area of the law.

 

This is creating an unequal playing field because legitimate and ethical salon owners and hairdressers are following the laws by paying their fair share of taxes, while many of their competitors are not.

Punishing hard-working salon owners and hairdressers for honesty and playing by the rules while others are not is wrong. I suppose going after legitimate salon owners because they are easy to find is easier for the auditors.

 

Many salon owners are being forced to enter into the booth rental salon model or lose members of their team to booth rental salons after they train and educate their workers. Of course, customer lists are expected to follow.

 

Our new generation of hairdressers is increasingly being forced to leave the profession because of the unwillingness of legitimate salon owners to train and educate young talent because they will only lose them to a booth rental salon.

The future of our new generation will be impacted because salon owners are willing to train newcomers. The high dropout rate is sad.

Consequently, those of us that are operating our business legitimately and paying our fair share of taxes and protecting our workers through workers compensation, sharing our valuable time and vast knowledge through mentoring and training our workers, providing jobs, training and education, paying our fair share of employment taxes, providing insurance liability for our customers and workers compensation for our employees are being penalized because of those who are taking advantage of this gray area of the law.

Sadly, those of us who follow the law and legitimately run our businesses are footing the bill for those who do not. As a hard-working business owner and taxpayer, I consider this a form of discrimination as well as unfair competition. An equal playing field would not only solve this growing problem, but also save many salons from going out of business, and help our new generation of beauty professionals.

I have been in business for over 40 years and have always conducted my business ethically and honestly, paying employee taxes, providing workers compensation, protecting my employees, providing liability insurance for my customers, providing education and training for my workers, as well as job opportunities and investing money in marketing and advertising for new clients for my young starters, and also providing mentoring and educational guidance for my workers.

As a legitimate employer, I know my views are shared by thousands of hard-working salon owners whom I have had the privilege of meeting during my seminars and trade show presentations throughout the United States.

Even worse, the increase of new salon owners and hairdressers adopting these illegal practices is causing havoc within the beauty industry and destroying job opportunities and business stability for our new generation of hairdressers and salon owners.

Due to rising business costs and a poorly trained labor force, it is becoming increasingly difficult to compete with chair rental salons. Because there is such a high volume of cash transactions, the independent contractors find it easy and tempting to hide or understate their true income.

Many employees of other salons see their friends understating not only their true income, but tip compliance with our taxing and enforcement agencies as well, and then they want to know why they have to have the proper taxes taken from their pay checks.

Most legitimate salon owners have been willing to provide training and education for their employees. However, with the proliferation of booth rental salons and suite rentals, fewer and fewer salon owners are willing to provide this training and education due to the unethical recruitment practices of booth rental salons.  Many salon owners find they are being used as a stepping stone to those who basically open their own business with no risk of the expense of the legitimate owner.

Sadly, many, salon owners who refuse to enter into booth rental or refuse to break the law are losing experienced and trained staff members to the booth rental salons after spending time, money and offering education and on-job training for their employees. This is wrong and unethical. Sadly, many of these salon owners are turning their salons into booth rental salons just to survive.

What makes matters worse; many of these booth rental salons are recruiting other salon owners’ staff by offering lower rents.  Of course, customer lists are expected to follow. Unfortunately, legitimate law abiding salons are failing due to staff turnover, business interruptions.

Business and staff stability must be maintained if a business can be expected to grow and remain profitable.

This vagueness and gray area of the law is being used as a loophole and is breeding dishonesty within our profession and destroying the future of the beauty industry throughout the United States.

As an employer, my taxes and business expenses continue to rise, and I have to ask the question “Is it because I am a victim of an unequal playing field, because booth rental salons are not paying their fair share of taxes and worker compensation costs?   Unfortunately the answer is yes. Thus, many hard-working tax payers are being penalized for their honesty. Lost tax revenue affects everyone.

As a concerned salon owner and taxpayer. I respectfully urge that your enforcement agency or those responsible for enforcement, clarify and address this growing problem against those who are, knowingly and unknowingly, defrauding  California as well as other states, taxpayers, and our local government agencies  of millions of dollars of tax revenue.

With a growing budget deficient and the need for tax revenue, addressing this obstacle would increase much needed tax revenue.

As a business salon owner, I enthusiastically welcome legitimate competition. I only ask for an equal playing field.

I am well aware that your budget and manpower for enforcement are limited.  However, if you would focus random audits on the chair rental salons, you will see that most misclassify their workers as independent  contractors when, in fact, they are employees, knowingly or unknowingly circumventing paying employee taxes, following minimum wage and overtime pay, providing liability insurance for their customers, and providing workers compensation.

Random audits of independent contractors will provide you with interesting results.

Strict enforcement and clearer guidelines would serve as a warning to individuals that the State of California and other states, those responsible for enforcing the law are no longer going to passively sit by and allow the faithful and hard-working taxpayer to foot the bill for people who are not paying their fair share of taxes.

I urge you to take action immediately so we can stop the bleeding of my profession. I am not only protecting my rights as an employer and as a tax-paying citizen and hairdresser, but the rights and future livelihoods of my staff members and the new generation of hairdressers and salon owners.

I urge you to address this and outlaw or clarify  booth rental and independent contractor status; an equal playing field will benefit everyone.

With the State of California as well as other states facing severe budget and spending cuts especially to our schools and other businesses, the need to address this growing problem is essential.

An anti-business climate forces small businesses into an underground economy or to locate their business elsewhere; thus, losing jobs and tax revenue will continue to escalate.

I feel this letter is appropriate, and I feel thousands of small business owners agree with me and can serve as a guide in making sure we have an equal playing field for everyone.

I have enclosed a petition signed by salon owners.

P.S. I suggest a six-month or one year amnesty clause for salon owners who are renting out chairs as time to change over. Many of these owners have been forced  into renting stations just to survive. We owe it to them to at least give them an opportunity to change back to a worker-employee status without the fear of being audited.

Respectfully Yours,

Jon Gonzales