Paying Employee Commissions

by Kamryn
(Red Deer, Alberta)

Bookkeeping for hair stylists can be complicated

Bookkeeping for hair stylists can be complicated

This question needs an answer. Do you know the answer? Please share your knowledge!

Hi Lake!

I really need your help! Payroll is driving me crAzy!

I've spent endless hours online searching for the answers and I just think I have it all figured out and then a new question pops up in regard to paying an employee commission (ie: hair stylist). Here goes...

Hypothetically, the stylist receives 65% of their sales (services), 10% of product sales, and 100% of tips.

Do I use the amount BEFORE gst when calculating the commission pay for sales?

I do know that employee income from tips and product sales is subject to source deductions. But then there's vacation pay! I understand that tips are exempt, but I just wanted to make sure that the product sales are too?

I think the answer is that commission is calculated on the net amount (not including gst) and that vacation pay is not paid on tips or product sales. Is that correct?

Thank you so so much for maintaining this helpful site! I'm glad I found you and very highly recommend it!

image of fancy scroll lines

Hi Kamryn,

I don't know the answer to your question(s) without doing some research ... so I'm going to post this in
the hopes some payroll gurus will be able to answer faster than I can at the present time.

You mentioned that you had done some online research already. Could you post back with any references you've already located so I'm not covering the same ground as you? I would truly appreciate it.

Okay, just thinking this through out loud. The words employee commission says to me that the stylist is an employee not self-employed.

Also, GST/HST are monies collected on behalf of the government. The business owner is just a trustee. Therefore, it wouldn't make sense to me to include sales tax when calculating employee commissions.

I don't know the anwser to your question about vacation pay, product sales and tips without doing some research. As you said, the answer doesn't just pop anywhere.

Here are general references relating to hairdressers that I've located. They don't answer your question but they may be useful to other readers. I haven't researched vacation pay yet as it is different in every province.

CRA has a very good reference page for barbers and hairdressers. You can find it at Businesses> Payroll> Calculating deductions> Special situations> Barbers and hairdressers.

The Tax Guy ( also blogged about Can a Hairdresser Claim Tradesperson Deductions? in March 2010.

Comments for Paying Employee Commissions

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by: Rita

Hello, for years I paid employees commission on aesthetic services.

Commission is paid on the sales amount, not including GST/HST.

Vacation pay is paid on Service and Product Commission, but not on Grats.

Thanks Rita
by: Lake

Thanks Rita for taking the time to post on this bookkeeping question! Truly appreciate you sharing your knowledge in this area.

Commission Payment to Hairstylists
by: Anonymous

The only way to prevent yourself covering the costs, and making the money to cover costs by doing the work yourself 5-7 days (behind the chair instead of managing then managing in spare time) per week, is to remove your working costs (overhead, bills, product charges, support staff, etc.) before paying a commission.

You can offer a lower commission if you pay all expenses or choose which is the better option.

If you pay a high commission you definitely need to calculate your average monthly expenses. Then figure your hourly operation costs by dividing your average monthly expenses by the number of employees that fairly choose to share the cost of keeping the business in business.

It is not a co-op but a business for which you have provided a place to work and have paid the initial fees and put up a lot of time and $$ to organize. The business should be able to run without the management having to do the work to keep it afloat.

In short, be fair and just. Cover the cost of doing business by taking the cost of doing business in an hourly breakdown from the top. Pay commission on what is left.

You need to be fair and ethical to the employees by watching the operational costs and dividing it between your ideal number of employees. For example, if you have 10 stylists, the hourly operational costs per stylist will be less than between 5 stylists.

If you intend to have 5 stylist at one time, divide between 5.

If you intend to have 10 stylists but you currently only have 8 today, you still allocate operational costs 10 ways. Meanwhile, you look for more stylists and cover the costs until you have your number.

Providing a great work environment and keeping your stylists learning will keep them a loyal group.

When you pay 40% commission, you actually pay that plus government deductions, so keep that in mind - though it doesn't all go to the stylist it doesn't mean you don't pay it.

Too high of a commission means you have less to pay operational costs with.

How to Determine Hair Stylist's Rate
by: Lake

Thanks Anonymous for sharing how a salon owner calculates the rate hair stylists are paid.

commission stylist
by: Anonymous

When you pay commission, do you provide styling products?

by: Rzor

What about giving a T4A to a barber. I own the barbershop and I have several barbers who cut hair in the shop. They take a % of sale of the cut (commission) plus any tips.

Is this ok in CRAs eyes? that I have been issuing them each a T4A?

If not, what is the correct way?

by: Lake

Check out CRA's website on how to report barbers who are employees AND barbers who are NOT employees here:

Both require a T4 not a T4A slip for EI and PPIP purposes.

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