This is the most comprehensive guide to Rent A Chair 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 in your salon or barber shop right now (in 2020).
In short: if you want to learn how to implement a Rent A Chair Agreement properly, you’ll love this guide.
Let’s get started.
What is a Rent A Chair Agreement?
A Rent A Chair Agreement (also known as a Salon Licence Agreement or Salon Booth Rental Agreement) is a contract to rent out a chair in your salon to a freelancer such as another hairdresser, beauty therapist or masseuse.
The freelancer is an Independent Contractor who effectively 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 chair, while the Independent Contractor gets to manage their own clients without the overheads of running a salon.
Is this only for Hairdressers?
No, Rent A Chair Agreements are also very common in barber shops, beauty salons, nail salons, day spas and tattoo studios.
How much does it cost to Rent A Chair in a salon?
There a few different ways you can charge for renting a chair in a salon:
- Fixed Rent – the stylist pays a set amount per day/week/month
- Percentage Commission – the salon owner takes a cut of the stylist’s total revenue from clients (usually around 40-60%)
- Combination – the salon charges both fixed rent AND a percentage of revenue from the stylist.
Whether you are the salon owner or the stylist, you can negotiate with the other party to agree on the price you are happy with.
Pros and Cons
The pros
- As a salon owner, you can save money by not having to pay 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.
- 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 Chair 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 Chair 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 Chair Agreement Include?
A Rent A Chair Agreement should cover all of the key details of your working relationship with an Independent Contractor. This includes:
- Money – will you charge a set Licence Fee (weekly/monthly), a percentage of takings, or a combination of both?
- Bond -the amount you will charge as a security deposit
- Permitted use –the services they are allowed to carry out at your salon
- Length of agreement – month to month or a fixed term (e.g. 12 months)
- Access and hours of work – can they work whenever they want, or only during your salon opening hours?
- Inclusions – what does the ‘chair’ include? Appropriate workstation including mirror, counter, plug points, access to sinks and storeroom etc.
- Tools and products – do they supply their own or use yours?
- Reception, telephone, client booking system, EFTPOS, apprentices –do they supply their own or use yours? Generally, bookings and payments should be handled separately from the salon.
- Common areas use – rules around the contractor’s use of sinks, kitchen, bathroom etc.
- Operating Expenses – are charges for cleaning, electricity and other utilities included in the contractor’s weekly/monthly Licence Fee or charged extra?
- Insurance – what insurances do you require the contractor to have and maintain?
- Risk – specify liability for damage and injury caused by the contractor
- Termination – how can either of you terminate the agreement?
Independent Contractor or Employee?
Salon owners need to understand the differences between an Independent Contractor and an employee to avoid any 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 Chair 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 Rent A Chair Agreement signed, which makes it crystal clear that it is a true Independent Contractor arrangement and the person renting a chair is not your employee.
Other Considerations
Before entering into a Rent A Chair Agreement, 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 the Rent A Chair Agreement is terminated by either party.
Conclusion
A Rent A Chair Agreement is a great way for you to earn extra income for your salon and get maximum return on the chairs available. However, if you don’t set up the arrangement properly, the person renting a chair 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 Chair arrangements to make sure you stay on the right side of the law.
