Bookkeeping for Hair Salons: Booth Rent vs Commission

How does bookkeeping for a hair salon treat booth renters and commission stylists?

A booth renter runs a separate business inside the salon and pays the salon rent, so the salon books the rent and nothing else. A commission stylist works in the salon's business, so the salon books the whole service sale as revenue and the stylist's share as pay. Which one a stylist is depends on the facts of the relationship, not the name on the agreement (IRS).

A salon's case is not simple when a "renter" works shifts the salon sets or charges the salon's prices, when a "contractor" is paid only a commission while the salon books the appointments, when the salon has both kinds of stylist, or when one card terminal mixes sales, tips and a renter's takings. A wrong label can leave the salon owing employment taxes for past years (IRS), so commission stylists paid on Forms 1099 are the first place to look. Gather rental agreements and pay splits, point-of-sale and processor reports, tip logs, product invoices, and any Forms 1099 or W-2 already filed.

This page covers federal rules. The IRS tests used here are general, so they also fit barbershops and nail, lash and skin-care studios. A state's labor, unemployment-tax and licensing agencies can apply their own tests, so check yours.

What shows a booth renter really runs their own business?

A booth renter leases space from an existing business and runs their own business as an independent contractor (Publication 4902). The IRS sorts the evidence into behavioral control, financial control and the relationship of the parties, and no single fact decides (IRS).

Sources for the table: Publication 4902 and Publication 15-A. Publication 4902 says that when the renter factors are missing, the stylist is likely an employee of the business providing the space. Publication 15-A treats fixed ongoing costs, due whether or not work is going on, as especially important, and booth rent is that kind of cost. The IRS guidance does not address rent set as a share of the stylist's sales; it resembles a commission, which can point toward employee status. A written agreement is one fact among many.

If the answer is close, either the business or the worker can ask the IRS to decide on Form SS-8 (IRS). The full test and that route are in contractor or employee.

Is booth rent a salon's income, and how is it recorded?

Yes. Rent a booth renter pays is the salon's income. Record it in its own account, booth rent income, with a tag for each renter, when it is due or received depending on the salon's accounting method. Keep it out of service revenue. The renter's haircut sales, tips and retail sales are the renter's and stay out of the salon's books.

Where the rent is reported is a return question. The IRS rental guidance is written for residential property, hotels and similar rentals, not booth rent. It puts rents on Schedule E, but on Schedule C, with self-employment tax, when the owner provides substantial services mainly for the occupant's convenience, such as regular cleaning or changing linen (Publication 527; Publication 334). Whether a front desk, laundered towels and shared supplies make a salon's services substantial is a question of facts, and the IRS cosmetology publication does not say where a shop owner reports booth rent. A salon owned by a partnership or corporation reports the rent on that entity's return.

Does a salon book the whole sale as revenue for a commission stylist?

Yes, when the client buys the service from the salon and pays the salon: the whole price is then the salon's revenue. Business income includes what customers pay by card (Publication 334). The stylist's share is an expense, and what it is called depends on status:

• Employee: the share is wages, and wages include commissions (Publication 15). The salon withholds income tax and the employee's Social Security and Medicare tax, and pays the employer's Social Security (6.2%) and Medicare (1.45%) tax plus federal and state unemployment tax. Employee pay and the employer's payroll taxes are generally deductible (Publication 334). Book wages and payroll tax in separate accounts so each stylist's full cost shows; the entries are in payroll journal entries.
• Contractor: the share is contract labor. Payroll tax is not withheld, but backup withholding of 24% applies if the contractor gives no required tax ID or the IRS says the ID is wrong (instructions). Whether a Form 1099-NEC is due depends on the amount, the contractor's tax classification and how the salon pays (which contractors get a tax form). If instead the stylist sells in their own name and the salon only collects, the salon may be passing money on rather than earning it, as with a renter's takings; see gross or net revenue.

Commission is a way to pay, not a status. An employee is generally guaranteed a regular wage for a period, and the IRS says that usually points to an employee even when a commission is added; an independent contractor is more often paid a flat fee or for time and materials (Publication 15-A). A stylist who works the salon's schedule, with the salon's clients and price list, for a share alone looks more like an employee than a contractor.

Does a salon send a 1099 or a W-2 to a booth renter or a commission stylist?

A booth renter normally gets neither, because the salon pays the renter nothing for work. A commission employee gets a Form W-2. A commission contractor generally gets a Form 1099-NEC.

A salon that runs a renter's client payments through its own terminal and pays the renter out is in a harder spot. The Form 1099-K instructions treat a business that receives card payments on behalf of others and distributes them as the party that reports to the people it pays (instructions), so the salon may have to file a Form 1099-K for that renter. Keep a record of every payment passed through, and tie the processor's Form 1099-K back to sales with reconciling sales and payouts.

Forms W-2 and 1099-NEC for this tax year are both due February 1, 2027. Who gets a 1099 and the Form W-9 to collect first are in which contractors get a tax form. Starting payroll is in setting up payroll.

How does a salon record retail product, cost of goods and product used behind the chair?

A salon records retail product as retail sales, the cost of the product sold as cost of goods sold, and product used on clients as a supplies expense.

The IRS says its cost-of-goods-sold rules do not apply to a personal service business, but do apply to one that also sells or charges for the materials and supplies it normally uses (Publication 334). Retail product therefore goes through inventory and cost of goods sold, and a salon that bills clients a separate charge for color or treatment product counts that product the same way. A small business taxpayer can choose not to keep an inventory, but it still needs a method that clearly reflects income. Counting stock and filling in Schedule C Part III are in cost of goods sold on Schedule C.

Collecting sales tax on retail is in when you must collect sales tax, and buying product tax-free for resale is in resale certificates.

How are cash and card tips booked for a booth renter and a commission stylist?

A voluntary tip left for a renter, employee or contractor is never the salon's revenue. It belongs to the stylist, and tips are not amounts paid to the employer or part of the employer's gross receipts. A sole proprietor's own tips for work they do themselves are business income, reported on Schedule C and subject to self-employment tax (IRS). A charge the client must pay, such as an automatic gratuity, is a service charge, not a tip, and is the salon's income even if the salon passes it on (IRS). The books follow a tip to the person it belongs to.

The employer credit for Social Security and Medicare tax on tips covers tips of employees who provide barbering, hair care, nail care and esthetics (IRS). Tips in depth, including that credit, mandatory service charges and the current tip reporting rules, are in credit card tips: revenue or liability.

A card deposit holds sales, sales tax, tips and sometimes a renter's takings, less fees. Build revenue from the sales report, not from deposits. See recording daily POS sales and deposits net of fees and tips.

How does a salon see profit per chair or per stylist?

Tag every sale, pay line and rent line with its stylist or chair, and the profit and loss can be run by tag. Many programs call the tag a class or a tracking category.

Profit for a commission stylist is service revenue less that stylist's pay, the employer's payroll tax on it and the supplies used. Profit for a commission chair is the income tagged to it less stylist pay, employer payroll tax on wages and tips, supplies and other direct costs, then its share of the salon's rent and utilities. Profit for a rented chair is its booth rent income less the costs the salon bears for it. How to split shared costs is a management choice, not a tax rule. For account design, see chart of accounts for Schedule C and cost of goods sold for a service business.

What if a salon's stylists are a mix, or commission stylists were paid on 1099s for years?

A mix of renters, employees and contractors works in the books when each stylist is classified from their own facts and has their own agreement, tag and accounts. The risk is in the facts, not in having more than one kind.

If commission stylists were paid on Forms 1099 and the facts show employees, the salon can owe employment taxes for them unless relief applies (IRS). Relief can be harder for a salon that put some stylists in the same kind of job on payroll and others on Forms 1099 (IRS; IRS). A person who controls the salon's payments and willfully fails to pay over withheld payroll tax can owe it personally, as a trust fund recovery penalty (IRS). The routes (the Voluntary Classification Settlement Program, section 530 relief and a Form SS-8 ruling), how far back to correct and who else can owe the tax are in contractor or employee. Fixing past years starts with books that show each stylist's pay, tips and forms, year by year.

Example

These examples are illustrative and in US dollars.

A booth renter pays $800 a month

A renter pays the salon $800 a month. The salon books $800 to booth rent income each month, $9,600 for the year. In the same year the renter takes $12,000 for haircuts, $1,800 in tips and $500 of retail sales. All of it is the renter's, and none enters the salon's books. If the renter's clients had paid on the salon's terminal, the salon would record those takings as due to the renter and pay them out in full, not as revenue.

A commission employee on a 50% split

An employee stylist does $6,000 of services in a month on a 50% split, and clients leave $600 of tips on cards.

Revenue is $6,000 and the tips are neither revenue nor expense. Before supplies and unemployment tax, the salon keeps about $2,725 of the $6,000.

A salon sells shampoo

A salon buys $2,000 of shampoo to resell and sells $3,000 of it over the year. The units sold cost $1,300, and $700 is still on the shelf. Retail sales are $3,000 and cost of goods sold is $1,300, so the shelf stock stays an asset. With an 8% sales tax imposed on the buyer, the salon also holds $240 in sales tax payable, which is not part of the $3,000.

Different for you?

• You pay commission stylists on a 1099 but set their hours, prices or clients: the facts may point to employees. Read contractor or employee, then get bookkeeping help to set up the books for each stylist and rebuild past years once their status is settled.
• You want to move commission stylists to booth rent: a new lease is one fact among many (IRS), so hours, prices, clients and product have to change too. Read contractor or employee, then get bookkeeping help to close out payroll and book rent income for each renter.
• You own the salon and also work behind the chair: your own sales are salon revenue, not a commission. See recording an owner's draw or, for an S corporation, S corporation owner salary.
• Renters, commission stylists and the owner share one card terminal, and deposits do not match sales and tips: see recording daily POS sales and reconciling sales and payouts, and get bookkeeping help to set up the books per stylist.
• Forms 1099 or W-2 were wrong or missing for earlier years: see which contractors get a tax form and setting up payroll, then get bookkeeping help to rebuild each stylist's pay, tips and forms for the years in question.
• Tips were paid in cash or kept in the till: see credit card tips: revenue or liability and cash business sales records, and get bookkeeping help if those payments were never recorded.
• You sell retail product: see cost of goods sold on Schedule C and when you must collect sales tax.
• You need accounts that match the tax return: see chart of accounts for Schedule C.