Change Is Coming!
The only constant about the world of beauty is change. As laws and regulations are reformed, as the market shifts, as consumer preferences and styles alter, you can rest assured that our industry will evolve accordingly. Our livelihood, profit-margins and image depend on this adaptive nimbleness.
Public policies and regulatory reforms have been recent agents for change, some of which have the potential to significantly alter the trajectory of your beauty careers and businesses. These legal trends are happening throughout the nation at numerous state houses and regulatory agencies.
Here in California, the legal landscape has been in a constant state of upheaval the past five years, first with dramatic reforms to employee compensation, followed by a major shift in how booth rental establishments must operate. Along the way, we’ve also had to fend off a coordinated campaign to erode our licensed scopes of practice, which were nothing less than a delicensure/deregulation scheme.
Limits To Commissions
California has essentially rendered commission wages, i.e., sharing percentages between the salon owner and stylist, an illegal form of employee compensation. Commissions can only be paid to an employee who is selling someone else’s product or service, not their own (think of a car salesman as an authorized example). So while it may be appropriate to earn commissions off retail product sales, it is not so for commissions tied to beauty services.
California labor law provides only two exceptions to that ban on providing stylist-employees a percentage of the revenues they help generate via their beauty services, namely: (a) piece-rate bonuses or (b) SB 490’s commission exception.
A few years ago, California’s policymakers passed AB 1513, which went into effect January 2016 but is only now being implemented by regulators (and enforced by lawyers representing some disgruntled salon employees).
That law and its subsequent interpretation and implementation by the California Department of Industry Relations require employers who want to reward their employees with payment for completing a particular service to follow a detailed pay calculation.
Employers cannot incentivize their employees to skip their statutory right for rest/recovery periods, nor can they penalize them for their non-productive time when they are under the employer’s control. It is now illegal to pay employee-stylists more when they’re performing their services and less (or not at all) when they are between clients or taking their legal breaks.
Piece-rate compensation is an exception to the ban on commissions, but it requires significant payroll monitoring and paperwork. The employer has to track in each pay period all the rest/recovery and non-productive time of the stylist-employees to ensure that they earn commensurate pay as received during their productive time — a management nightmare for sure!
SB 490 Commission Exception
In an attempt to provide our industry an alternative, less cumbersome means around California’s rather broad prohibition against commissions and the piece-rate paperwork morass, the State Legislature passed SB 490 (Bradford).
This new law that went into effect two years ago allows a salon owner to pay an employee-stylist on a commission basis, but only in addition to a base hourly rate of twice the minimum wage. By 2022, that base wage rate would be $30/hr (since our state’s minimum wage will be $15/hr, then). Clearly the SB 490 option is out of reach of the vast majority of salons.
So even though it has been the long-held practice of our industry to pay stylists on a commission basis (some on flat commissions, others blended with minimum wage plus commissions), those pay structures are now legally dubious in California. And the only two exceptions in statutory law — “piece rate” or SB 490’s “twice-minimum” — are either too cumbersome or cost-prohibitive for most salons.
We have dedicated a number of columns to the bombshell California Supreme Court decision called “Dynamex,” so we would encourage readers to dig those up from our online archive.
Suffice it to say, here, that at least here in California and in a few East Coast states that have also adopted the “ABC Test” to distinguish independent contractors from employees, the days of booth rental as customarily practiced in our industry are numbered.
In reaction to this ominous threat, booth renters and their shop owners rallied the troops and began peppering our state representatives with angry phone calls, emails, social media posts and visits. Black barbershops, in particular, were very effective in reaching out to their elected officials to explain the existential threat to these urban hubs of African-American males.
The result was legislation introduced in the form of AB 5 (Gonzalez), which while seeking to codify the Dynamex ruling also provides very limited exemptions to a small number of industry sectors that have historically utilized independent contractors. As a result of the impressive grassroots revolt from our industry, hairstyling and barbering, as well as skin and electrology services were included in this Dynamex exemption, but notably thus far manicuring salons are not included in the legislation (at least at the time of publication of this column).
The narrow exemption will only apply to hair and skin salons whose workers are “free from direction or control” of the salon owner, including setting their own rates for services and hours of operation and maintains “their own book of business and schedules their own appointments.” Additionally, these booth renters will have to use “their own funds to purchase requisite supplies” and obtain “their own business license”, among other requirements to maintain separation between the booth renter and establishment owner/landlord.
This Assembly Bill has passed it’s House of Origin and is awaiting final action in the Senate before being sent to Governor Newsom for signature/veto (his deadline for action is mid-October). So stay tuned on this important development.
* THIS JUST IN (9/6/19 Update):
AB 5 was just amended into its final form that will be sent to the Governor for his promised signature.
Latest changes add in Mani’s (so that all BBC licensed individuals are provided this limited Dynamex exemption), but only extends this exemption to Mani’s for two years (the author has committed to working on some long term solution in subsequent legislation next year, possibly including a new booth renters permit promulgated by the BBC). The exemption for everyone is further narrowed in this final version, requiring 1099s from the booth renter to the landlord/establishment owner (not the other way around) and requiring the booth renter to process their own payments for services on clients (among the other requirements previously stated in bill). Here is the operative section of AB 5:
(xi) Services provided by a licensed esthetician, licensed electrologist, licensed manicurist, licensed barber, or licensed cosmetologist provided that the individual:
(I) Sets their own rates, processes their own payments, and is paid directly by clients.
(II) Sets their own hours of work and has sole discretion to decide the number of clients and which clients for whom they will provide services.
(III) Has their own book of business and schedules their own appointments.
(IV) Maintains their own business license for the services offered to clients.
(V) If the individual is performing services at the location of the hiring entity, then the individual issues a Form 1099 to the salon or business owner from which they rent their business space.
(VI) This subdivision shall become inoperative, with respect to licensed manicurists, on January 1, 2022.
You can read the entire bill at this link:
And if these full frontal assaults on how stylists are paid wasn’t enough, during last legislative session the California Senate overwhelmingly passed a delicensure bill, SB 999 (Morrell). Fortunately my organization, with the help of many in our industry both in California and beyond, were able to stop this troublesome bill cold in the lower House of our Legislature (Assembly). This ominous legislation would’ve exempted from licensure and regulatory oversight all shampooing and hair services not involving scissors/chemicals.
While on it’s face it was innocuous enough, the intent behind the sponsors of this bill and the author, himself, was to put a dagger through the heart of vocational licensing altogether. This deregulation movement has placed our industry at the top of their list, seeing it as the lowest hanging fruit for their much more expansive, libertarian designs. And this coordinate effort is spreading throughout the 50 states under various guises, including even social justice concerns about economically disadvantaged populations facing unreasonably high barriers to entry to making a living in beauty. So it shares bipartisan support and is only gaining momentum.
Finally, a word about the next potential means of avoiding the cost and liabilities associated with employed stylists and technicians, given the ongoing threat to our traditional booth rental segment in the post-Dynamex world.
California policymakers have adopted a “Personal Service Permit” for licensees who want to freelance their services outside of licensed establishment. Our State Board is in the final process of adopting regulatory language governing said PSP’s.
Will this soon-to-be legally operating freelance workers pose a systemic threat to all brick-and-mortar establishments, employee or booth rental alike? Or will this new permit merely authorize the long held norm of limited beauty services being offered at only special events outside regulated salons? How this plays out in the largest State in the Union is something every salon owner — from independent to chain, from sole proprietor to multinational corporation — will be watching very closely, as well the gig economy, already gaining a foothold in this industry.
Our industry has proven resilient and adaptive. With these and other policy changes coming at us in a seeming torrent of reform initiatives, it’s imperative licensed professionals and industry stakeholders tune-in, turn-on and remain nimble. These dramatic reform proposals have certainly given my organization added significance, buttressing the importance of maintaining a coordinated lobbying presence in State Capitols throughout the country.
*An edited version of this column appeared in the September issue of the California Stylist: