Over the past three years, California’s beauty industry has been hit with big compensation changes. The most recent blow, the “Dynamex Decision,” caused enough of a fuss to shake the ground.
The Dynamex decision was a ruling by the Supreme Court of California regarding a business completely outside of the industry. But this ruling effects industries overall and ours, in particular, may potentially be hit hard by the decision.
The good news? While the decision has everybody in a panic, not much has actually changed.
Today I will dive into what California specifically as a state has been going through in the last three years, what Dynamex means for our industry, what you need to shift, and my prediction for what is to come.
Background of the Dynamex decision
Dynamex is an overnight delivery company that’s been in business for over a decade. In 2004, they decided to move their W4 employees to contractual agreements and classify them as independent contractors.
Under this arrangement, all employed drivers were required to provide their own vehicles; pay for all transportation expenses including fuel, tolls, car maintenance, and vehicle insurance; and pay all taxes and worker’s compensation insurance. They were even expected to have a Dynamex sticker on their car.
The Superior Court of Los Angeles said that is not acceptable. Dynamex’s drivers were working as employees without the benefit of taxes paid by the company, yet were controlled and expected to behave in a way that wasn’t appropriate.
California Laws Affecting Our Industry
Let’s take a quick detour to two laws passed in California in the past three years: AB 1513 and SB 490. Even if you aren’t based in California, it’s good to know what’s going on in the industry because a lot of what happens in California eventually ripples throughout the United States. So even if it’s not affecting you directly, it’s good to be aware so you can make smart decisions for your business.
AB 1513
In 2015, a law commonly referred to as AB 1513 was put into effect in California. AB 1513 essentially classified hairstylists as being paid in piece rate (where a worker is paid a fixed amount or percentage for each piece of work completed) versus in commission.
There are generally two types of stylists in California: booth renters and commission. And when you think of commission, you think if you’re earning 50% commission and do a $100 haircut, you get $50 and the salon owner gets $50. AB 1513 said that’s not technically commission, it’s piece rate.
And, since AB 1513 classifies California stylists as piece-rate paid, not commission, stylists must also get a separate hourly wage for all non-productive time (NPT) that is spent in the salon, as well as for rest and recovery periods.
If that sounds confusing, it is. The trick to this is salon owners must break out all the different kinds of compensation on the pay stub. Now you have piece rate plus NPT time, plus rest and recovery periods, all of which, depending on your compensation structure, have different pay rates that must be broken out on the pay stub.
No matter how you slice it, if you’re a hair stylist in California working for a salon owner, you are a piece rate employee by California standards.
SB 490
Fast forward to February 2018 when SB 490 was put into effect. This law says it’s still okay to pay hourly plus commissions, so long as the base rate of that hourly pay is double minimum wage.
So if you own a hair salon in San Francisco, where the minimum wage is $15 an hour, and wanted to pay stylists by commission, their base rate of hourly pay has to be $30 an hour. Even for an entry level stylist.
When SB 490 was put into place, a lot of salon owners scrapped commission pay and shifted to different payment methods that don’t involve piece rate work. Some switched to a standard hourly, some to full booth rental. And, unfortunately, some salon owners slipped back into a 1099 system but decide stylists’ price point, hours, dress code, and booking system.
But if a stylist has to follow those rules, they are not a 1099 contractor. They are an employee.
The ABC Test
After the Dynamex decision, California instituted the ABC test. The ABC test looks to classify workers as either an employee or a contractor using three different factors:
A) that the worker is free from the control and direction of the hirer in connection with the performance of the work both under the contract for the performance of such work and in fact
B) that the worker performs work that is outside the usual course of the hiring entity’s business
C) that the worker is customarily engaged in an independently established trade occupation or business of the same nature as the work performed for the hiring entity.
It’s factor B – that the worker performs work that is outside the usual course of the hiring entity’s business – that’s the clincher. If your salon’s usual course of business is doing hair, then you can’t hire contractors as stylists.
For stylists who are 1099, all of the factors in the ABC test would be true. If your salon let you go tomorrow, you’d likely be screwed. You’re doing work in the salon’s business. And generally speaking, stylists who are being paid by 1099 must follow salon rules on hours, price point, booking systems, and scheduling.
So when we look at the Dynamex decision, we realize it’s over one thing: misclassification of employees. Treating 1099 stylists as employees just won’t fly anymore.
What the Dynamex decision means for our industry
The Dynamex decision is not as radical as we’re making it out to be; It’s just bringing to light old issues that are not going to be tolerated any longer, like 1099ing commission employees.
Salon owners are now forced to clean up their act and pay all of their employees legally. And a lot of salon owners saying this too expensive for them and their employees. None of that is correct. If you set up hourly or salary pay properly, you and your stylists don’t have to take a loss, and it’s less of a headache for you.
The only reason a salon would provide a 1099 to a stylist at the end of the year is if you pay your stylist over $600 in retail commissions. But that 1099 should be for those retail commissions paid, not service dollars.
We are all expected to pay our people and run our businesses legally. And if you do it correctly, you can be profitable, and your employees can make great money.
Booth renters, don’t panic
The thing that’s scary for a lot of stylists is the possibility that booth rental is going to go away in California. Can I tell you that it won’t? Nope. It’s very possible.
Does Dynamex mean that booth rental is going to be made illegal? No. It’s totally separate.
The Dynamex decision deals with the independent contractor issue. That being said, there are states in the US and even countries around the world where booth renting is totally illegal. So is it out of the question that it would become illegal in California? Not at all.
Protect yourself by establishing the formal lessor/lessee relationship with your salon owner. Make sure you have a lease in place and provide your owner with a 1099 at the end of each year for rents paid.
Stay aware and stay educated. Know what is going to work for you structurally in the years and months to come as we find out what the Dynamex decision means for our industry. For those of you who have 1099 stylists, or if you want to learn more about booth rental, commission, payroll or compensation on a bigger scale, click here to listen to episode 23.
* I am not a lawyer and cannot offer any legal advice. Please reach out to local employment attorneys in your area and see what the options are.
*As of September 2019, things have further changed for hairdressers, click here if you would like to learn more.