Are you a beauty professional looking for a beauty room to rent?
Maybe you’re a salon owner and want to earn extra income from your space but have no idea where to start?
Good news, this is the most comprehensive guide to Rent A Room Agreements in Australia.
The best part?
I’m going to break it down for you, so you understand everything you need to know to earn extra income right now (in 2021).
In short: if you want to learn all about renting a room in a beauty salon, you’ll love this guide.
Let’s get started.
How much does it cost to Rent A Room in a salon?
There are a few different ways you can charge for renting a beauty room in a salon:
- Fixed Rent – the renter pays a set amount per day/week/month
- Percentage Commission – the salon owner takes a cut of the renter’s total revenue from clients (you can negotiate)
- Combination – the salon charges both fixed rent AND a percentage of revenue from the renter.
Whether you are the salon owner or the therapist, you can negotiate with the other party to agree on the price you are happy with.
What is a Beauty Room Rental Agreement?
A Beauty Room Rental Agreement is a contract to rent out a beauty room in a salon to a freelancer, such as another beauty therapist, nail lady or masseuse.
This contract is also known as a Salon Rent A Room Agreement, Salon Licence Agreement or Salon Booth Rental Agreement.
The freelancer is an Independent Contractor who runs their own business from your salon…
As an Independent Contractor, they need to have their own ABN, and they’re responsible for managing their own tax and insurance.
It sounds like easy money, right?
It can be if done right!
As a salon owner, you can earn passive income or commission from a spare room. As an Independent Contractor, you can try something new without the upfront money, time and energy that goes into opening a salon.
Is this only for Beauty Salons?
Rent A Room Agreements are also very common in nail salons, tanning salons, hair salons, day spas, massage parlours, tattoo studios. waxing salons, laser hair removal salons, eyebrow and lash bars, body piercing studios and dermal therapy clinics.
For example, you could use the same agreement if you had a massage room to rent, and you wanted to bring someone in to fill the space.
Pros and Cons for Salon Owners
The pros
- As a salon owner, you can save money by not paying employee entitlements such as sick leave, annual leave, maternity leave or superannuation.
- You can maximise the use of space in your salon and earn extra income.
- By having a treatment room for rent to complimentary businesses, you can expand the number of services and treatments you can offer clients in one location.
- If things don’t work out, it can be easier to terminate the agreement (although this will depend on your individual circumstances).
The cons
- Even though they don’t work for you directly, their appearance, professionalism and quality of work still reflect on you because they are working out of your salon space.
- Clients may have no idea that they are a freelancer, so you might get the blame for their bad behaviour or poor service.
- An Independent Contractor could be competing with your salon, and you have little control over their actions because they don’t work for you!
Why You Need A Contract
It’s super important to manage a Rent A Room arrangement properly so that you protect your salon, your clients and your reputation. Setting out clear guidelines in a contract will make things easier for you and your freelancers.
It is also REALLY important that you stay on the right side of the law regarding Rent A Room Agreements.
There have been several cases recently where the Fair Work Ombudsman has fined salons for ‘sham contracting’.
More on that below…
What Should the Rent A Room Agreement Include?
A Beauty Room Rental Agreement should cover all of the key details of your working relationship with an Independent Contractor. This includes:
- Licence Fees – will you charge a fixed Licence Fee (weekly/monthly), a percentage of takings, or a combination of both?
- Bond – the amount you will charge as a security deposit
- Term of Agreement – e.g. 1 year
- Permitted Use – the services they are allowed to carry out at your salon
- Access and Hours of Work – can they work whenever they want, or only during your salon opening hours? Any restrictions in your lease?
- Signage
- Insurance – what insurances do you require the contractor to have and maintain?
- Operating Expenses – are charges for cleaning, electricity and other utilities included?
- Responsibilities – use of the premises and associated obligations
- Inclusions – what does the ‘rent a room’ in the beauty salon include?
- Marketing – normally the renter is responsible for marketing their own business, rather than relying on the salon’s existing client database
- Client Contacts – who owns the client database, and what happens when they leave
- Records – a record of sales (e.g. receipts) to make sure they are paying you the right amount
- Termination – how can either party terminate the agreement?
- Dispute Resolution – how to settle disputes
Independent Contractor or Employee?
Beauty salon owners need to understand the differences between an Independent Contractor and an employee to avoid legal issues.
Independent contractors have different obligations and rights to employees because they run their own business.
Independent contractors generally work for themselves, are free to accept or refuse work, control their own working times and provide their own tools and equipment.
Employees generally work in someone else’s business, are subject to controls on how, where, and when they do their work, are paid a wage and receive employee entitlements (such as sick leave and superannuation).
What is Sham Contracting?
Sham contracting is where an employer attempts to disguise an employment relationship as an independent contractor arrangement. This is usually done to avoid paying employee entitlements.
The Fair Work Ombudsman conducts inspections into Rent A Room arrangements regularly to make sure they comply with the Fair Work Act. If you are convicted of sham contracting, you could be hit with a fine of up to $12,600 as well as a back-payment of wages and entitlements.
How can I avoid this, and protect my business?
There are some important steps you can take to protect your business.
- Limit your control over a freelancer and make sure you treat them like a true Independent Contractor (i.e. they set their own days and hours)
- Setup your payment arrangements properly (i.e. they pay the salon fixed rent or a percentage of revenue ONLY, you don’t pay their superannuation, leave or PAYG)
- Get a proper Beauty Salon Room Rental Agreement signed, which makes it crystal clear that it is a true Independent Contractor arrangement and the person renting a treatment room is not your employee.
Other Considerations
Before you rent out a beauty room, you should discuss exactly what is included in the contract, so there is no confusion for anyone.
It’s important to consider how you deal with walk-ins, marketing to clients, and what happens to the client database if either party terminates the agreement.
You should also double-check your lease before you do anything.
Renting a room might be considered as ‘subleasing’ by the landlord. This might be restricted under the lease agreement or require written approval from the landlord first.
Key Takeaways
A Beauty Room Rental Agreement is a great way to earn extra income for your salon and get maximum return on the space available.
However, if you don’t set up the arrangement properly, the person renting a room may be deemed as an employee and then you as a salon owner can become liable for all employment-related entitlements.
We recommend that you have a proper contract for any Rent A Room arrangements to ensure you stay on the right side of the law.
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