A Fresh Cut on Commission-Based Pay in Cosmetology

A Fresh Cut on Commission-Based Pay in Cosmetology

A recent change to the California Labor Code modifies the definition of commission pay for employees that are licensed pursuant to the Barbering and Cosmetology Act.

Senate Bill 490, introduced in February 2017, adds section 204.11 to the California Labor Code, authorizing beauty salon employees to be paid commission if certain requirements are met. The requirements kick in when the employee, who must be licensed pursuant to the Barbering and Cosmetology Act is being paid for providing services where such license is required. These cosmetologists can agree to be compensated by percentage or flat rate sum commission in addition to a base hourly rate if the following requirements are met:

  1. The employee’s base hourly rate is at least two times the state minimum wage rate in addition to commissions paid; and
  2. The employee’s wages are paid at least twice during each calendar month on a day designated in advance by the employer as the regular pay day.

With this new compensation option, employers will pay the break times based upon two times the minimum wage amount, which will lessen the administrative burden when compared to piece rate compensation.

For example, under the new law, a salon employer could enter into a pay agreement such as the following:

Salon owner Sweeney Todd agrees to pay employee Edward Scissorhands an amount equal to two times the state minimum wage for each hour worked. If the minimum wage is $10.50, Sweeney must pay Edward at least $21.00 per hour. Sweeney may also pay Edward an agreed commission for all services performed. This commission is in addition to the base hourly rate. For instance, Sweeney can agree to pay Edward a 20% commission for all services. If Edward then works 8 hours and performs $750 worth of services, his pay for the day would be $318 ($168 in hourly pay plus $150 in commission).

Edward’s rest periods would be included in the base hourly rate of $21 because he is on the clock for two rest periods. Sweeney doesn’t need to calculate or show rest periods separately on Edward’s wage statement. Thus, Sweeney is able to avoid one of the more time-consuming aspects of complying with the piece rate rules.

Salons and barber shops are not required to pay their employees in this way, but if the requirements are not met, incentive pay will not be construed as commissions and may be deemed piece rate compensation, subject to the requirements of Labor Code section 226.2. Piece rate pay has special requirements relating to payments for rest breaks and overtime and onerous documentation requirements. This is especially true in the beauty industry where stylists may sell additional products or additional treatments during a service.

There are multiple options for compensation of an employee in the beauty services industry, each coming with its own requirements. Salons opting to pay commissions to their employees should review their written commission agreements to confirm compliance with all applicable laws.

The employment attorneys at Murphy, Campbell, Alliston & Quinn can help you comply with this ever-changing legal environment.

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