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Chair rental, self employment and the law

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Top 10 Contributor
ktWoods Posted: Tue, Mar 23 2010 10:18

This query was posted on the bottom of a post about the legal implications of chair rental:

I have been working in a solon for ayear now on a self employed 50/50 basis, the salon owner pays for colour and products. I get paid weekly on a Sat on her terms, could get paid morning or after work. I have to go by a dress code, if i want to have the day off i have to ask her permission .Where do I stand with self employment rules? Help

Top 10 Contributor

There isn’t a single answer.

Firstly if you are genuinely self employed there should be a written agreement between you and the salon owner. This is  called a “Contract of Service”. This should spell out in detail exactly which services you are providing and how you will be paid. Effectively you are running your own business and are not employed by the salon.

As  a self-employed person you have an agreement to provide services ie your business to the other business. In theory it needn’t even be you that provides it as you may have other salons where you wish to provide your services. The agreement could say the services must be provided by someone qualified to nvq 3 level.

I am sorry this is a bit complicated but the more controls the salon owner puts in place ie the times and days you work, what you charge, what you wear then the more you move towards potentially being considered an employee. As an employee, of course, the costs to the salon owner increase dramatically as they become liable for 28 days paid holiday. National Insurance contributions etc.

I would suggest you speak with the salon owner and obtain a written agreement, on the basis that you are selling your services there isn’t  a problem with you producing the agreement.

Top 150 Contributor
YSL replied on Mon, Mar 29 2010 11:00

I wrote a piece on chair rental last year including a review of the recent case law and using experience from the NHF's chair rental contracts..... here is an extract which I hope helps,

Your Salon Lawyer Article

 

Vodka and Tonic: The Chair Rental saga

 

It isn’t often that hair salons find themselves amongst reported cases in the Royal Courts of Justice, but when they do it tends to be industry shaking issues! So what is the issue on chair rental- after all a survey in 2004 indicated that there were more than 100,000 self-employed hairdressers in the UK.

 

The problem is the tax man. The issue of chair rental and the charge to VAT in circumstances was brought to the Courts by a London salon called Michael Jane in June 2007.

 

The two arguments that existed in favour of salons were,

 

a.      a letting or licence of a chair space (or any other space such as a room or floor) might be a VAT exemption under the law and the entire charge would be exempt, and

 

b.      even if the facilities offered were VATable then the cost attributable to the remaining space could be divided from the gross cost and deducted.

 

The Court found against Michael Jane and I have paraphrased some of the judgment below as this gives a good précis of how the salon was operating in practice.

 

The Court stated,

 

“….there were chairs in the basement for each stylist. There was a client waiting area in that separate room with its own chairs. In 1996 there were three self-employed stylists. A sign on the door to this separate room in the basement stated that the room was for the use of independent contractors. On each mirror there was a sign stating that each stylist's chair was for the sole use of a designated stylist. Each of the three stylists share the use of the washbasins and the dye-mixing room. The self-employed stylists shared [a junior assistant], and the same appointment book and till as the rest of the staff.

 

The stylist who has rented the chair cannot carry on her business from her "floor space area" alone; she has, for example, to go and meet her client, to take her client to the washbasins and she has to go to the dye-mixing area. They have to move around the premises "to do their jobs",

 

We infer from the evidence that exclusive use of the area floor spaces was not part of the arrangement. The area-floor space of the stylist was not defined in the agreement that we saw. Nor were the dimensions of such space specified. The only thing that could possibly be described as exclusive use was the chair allocated to the particular stylist. But even that was available to [the salon] and to the other stylists when the particular stylist was absent.

 

What the stylist wants is a chair and mirrors, lighting, heating and water, use of the reception facilities and of stock in the dispensary and a laundered towel service. The Agreement has sought artificially to split the already artificial floor space licence from the real service of salon facilities…..The total amount payable was a package.”

 

In short the Court believed that Michael Jane was looking to create an artificial paper trail and use the contract to exempt part of their charges from VAT whereas the practice was very different. The problem that befalls salons is that, by their very nature, there has to be fluidity in the way that stylists work and use common facilities. It is this practice that the Revenue will review.

 

I should say at this stage that this does not mean the death of chair rental- what is simply means is that the VAT man will expect to recover VAT charges on any invoices rendered for the use of facilities. Chair rental was never intended to be a neat way to avoid tax but a neat way of filling a salon and satisfying client needs.

 

My view is that the Michael Jane case is fairly clear. However, the case was appealed so that a more detailed review and precedent could be set and in May 2008 (reported on 30 October 2008) the High Court itself took the question on board following an appeal from a second case at the VAT Tribunal in June 2007. You will notice that June 2007 was not a good month. This case concerned The Studio Hair Company alongside Michael Jane.

 

In the High Court, Mr Justice Blackburne commented,

 

“I certainly do not consider that the question is one which is altogether "acte clair". On the contrary, I am troubled by it.

 

This does not mean, however, that he was so troubled to find in favour of the salons. In a 98 paragraph judgment Mr Justice Blackburne chose to sustain the decisions of the original VAT Tribunals. He ruled that the VAT exemption did not apply to a licence to occupy land which was only one element of a package of supplies. In other words where the licence was combined with access to towels, tills and water (for example) then all should be seen in combination. He said that the various facilities provided to the stylists were a “single indivisible economic supply which it would be artificial to split. The facilities were interdependent, in that the provision of one would be of little use without the others”.

 

As with all matters legal it is important to ensure that the salon is properly advised on the pro’s and con’s of each course of action.

 

So what are the solutions? Well chair rental is still viable and an excellent opportunity for both stylist and salon provided it is managed correctly. The National Hairdressers Federation has two contracts which are heartily recommended,

 

The Consolidated Service contract is a full contract for the use of supplies and services within the salon.

 

The License Over Land contract (which is the contract which suffered from misuse by the salons in the court cases) grants the stylist a non-exclusive right to work from defined areas in the salon. This is typically useful where a spare room or floor is available (as was the case with Michael Jane). The problem lies in its use (or misuse) as the contract is not a tax avoidance tool but a definer of a contractual property relationship and as long as the salon’s business models and practices reflect this then it has real and positive uses to protect the salon.  

 

Julian Sampson www.hairlaw.co.uk salon@wrightandwright.com lawyers dedicated to the salon business
Not Ranked
nadz replied on Mon, May 17 2010 22:54

hi

i rent a chair giving my salon owner 50% around £500- £650 a week of my earnings and she supplys products etc. i start work 8.45am-6pm on a weekday and 8.45am-9pm on  a thurs, if  i do not have a client for example till12 and i turn up to work at 9 rather than 8.45 then she is funny with me and starts saying im late etc. i have to ask for permission to have time off and i have a dress code i feel more like im employed rather than self employed i am only 22 and worked there a year and half the first year i only took 2weeks off by my choice but i did sign a contract, in that contract the license fee is exempt for 4 weeks pro rota and she says that is good will of the owner. after this a license fee of  £40per weekday and £60per sat which i understand but i recently fractured my foot and had to take a week off because i phisically couldnt work so iv had to cough up which i feel is not fair as i am loyal to her and a hard worker and never took time off before and i didnt realise that the 4weeks i have includes sick as its not clear in the contract. can you confirm that what she is doing is correct and legal please, thankyou.

one more thing my salon owner renewed the contract before i started and it used to be 5weeks holiday and a member off staff refused to sign the new one but is still working there and has 5weeks holidays still is that even legal

Top 10 Contributor

Nadz

Thank you for your question There has been a tribunal case very similar to yours in the last few months. Basically if you are self employed you are running your own business.

The tribunal look if you are relatively free to come and go, certainly having fixed hours. In your case, being required to be there even if you have no clients would be a major indicator that in reality you were an employee. Similarly if you are running your own business you shouldn’t have to request time off and are free to send a substitute to cover you subject to them being trained to deliver the service.

From what you have written, it would appear to me that you have many of the features of an employee.

To an employer one of the benefits to the salon is that you are not entitled to the minimum wage or holiday pay.

It’s really a matter of what you want to do. You can discuss your concerns with the salon owner, particularly your decision not to attend just in case you have passing custom.

I doubt there would be sanction as you could then make a claim to an employment tribunal that you were really an employee and had been dismissed, if you were successful in arguing that you were an employee (which based on your question seems a likely possibility) you could make a claim for unfair dismissal, arrears of holiday pay and the minimum wage i.e. a potentially large sum.

In most cases the employer isn’t actually behaving in an illegal way deliberately they just don’t have a full understanding of what self employment is. So you could suggest they check the legality of the current requirements!

However, the agreement re rent seems to be fine. Many salon rental or chair rental arrangements are for 52 weeks. If a flat rent is paid then it is entirely up to the self-employed person when and if they attend.

However, like renting a flat, the rent is payable whether you occupy the flat or not. Therefore I think the arrangement that the rent is payable for 48 weeks is reasonable even though you may not think it is fair. If you rent premises in the high street you pay an annual rent and aren’t allowed to refuse to pay if you are on holiday and closed.

Finally, I normally see self-employed people paying a flat rent (which is much easier for all parties) or some sort of income share. Your circumstances where you pay an element of both is far less common in my experience.

Please feel free to get back to us with more details or any questions.

Not Ranked
nadz replied on Mon, May 24 2010 22:28

thankyou for your reply i just wanted to check that what she was doing is correct as another salon has approached me and said that his staff come and go as they please and only pay for the days that they are in. Im thinking of cutting my hours down a little as 50hours a week is starting to get very tiring but im worried she wont allow me can she tell me i cant if im self employed. The other thing that upset me was last week i was ill with a chest infection and cold, but i still came to work but i was not busy that week and on the wednesday my first client was not untill 1pm and i was really poorly this morning and instead of coming in at 8.30 like i normally do despite having clients or not i was running late and arrived in at 9.10am and she said to another member of staff and infront of a client, 'who does nadine think she is she is f-ing meant to be here for 8.45' when i was clearly not well and the second week she caught my infection and moved clients from her collum to mine without asking so she could go to the docs and arrived back late and was going home early and everything, i cant even imagine how she would react if i did anything like that what im wanting to know is can she go mad at me for being 'late' if i have no clients when the other staff only start when thier first client is in and even if i have signed the contract fo having 4 weeks unpaid but still lets one member of staff have 5 weeks surely its not equal. im starting to feel like other than the good money there is not much benefits and definately feel like im employed but i pay my own tax and insurance etc. one more thing is how do i go about sick pay as i do pay my stamp but dont actually know how to go about it as i went ino being self employed not knowing anything about it so i really appreciate you helping me

Not Ranked

Hi, Sorry to interrupt on your comments but I too have a similar situation where as I've been renting space in a salon as a hairdresser for a year now & have never signed any contract or agreement, it has all been verbal. 

The salon owner has been very reasonable in the past but has recently started changing rules within the salon as has started getting more & more staff.....all of whom are sef-employed. As I'm quite happy & very flexible with most of the rules there's one new rule that I'm not happy with. Im only part time working max of 2/ 3 days per week & in the past when I've taken holiday for a week or so & because I'm aware that I'm renting space & still have to pay when I'm not there.... which is pretty standard, I've been making up my hours in the run up before my time off & on my return. I'm now being told that I can't do this as it's costing more on overheads when I do make up my days! It actually isn't because it's costing nothing when I'm not there & I'm still paying my rent. 

I'm not happy with the new rule! how do I stand on this? Appreciate any advise.

 

Thanks

Top 10 Contributor

Of course as I always say you should have a written agreement specifying the exact terms of the agreement and this would avoid any confusion.

If the terms are to rent for e.g. 3 days then the salon owner can legitimately refuse to allow you for extra days

However one of the main principles of self employment, whether you are renting a chair or providing your services for an hourly rate, is the issue of substitution.

This means that you should be able to send a substitute to deliver your services when you are away.

I understand this might not be helpful for you if you do not have anyone available!

Not Ranked

hello i am fully self employed and dont have a written agreement with the salon i work in, i have been told by the salon that i still need to pay rent when i am taking my holiday entitlement, is this right, what are my rights when it comes to holidays

Not Ranked
help replied on Thu, Dec 19 2013 15:45

Can the salon owner legally make us pay then when we are off on holiday if she has never given us an agreement? 

 

 
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