developed. Designed to offer protection in the case of product damage caused to a client's
skin, hair or nails, through misuse or use, product liability insurance provides protection for
a salon's financial and professional reputation.
· Unemployment insurance is required by federal law for all qualified employers. Employers
pay into a central fund that offers compensation to laid off, displaced or otherwise eligible
employees until suitable employment can be found and/or a designated amount of time has
passed.
·
Worker's Compensation is a state-controlled insurance required by law.
This
insurance is paid directly to the state on a quarterly basis to cover any expense resulting from
an injury to an employee. If the employee is injured while working in the salon, all medical
expenses are paid by the state, and the state provides the employee with a guaranteed income
until the employee can return to work.
Taxes
The salon owner is responsible for withholding from an employee's
income for payment of certain taxes and for paying these withhold-
ings to the government. In the U.S., these include federal, state and
local income taxes and social security tax. The salon owner also has
a tax obligation to the employee.
For every dollar of social secu-
rity tax paid by the employee, the salon owner must pay the
same amount to the federal government. Social security is a planned savings/retirement
fund for every worker in the United States.
Medicare is part of your social security tax and pro-
vides medical insurance coverage during retirement. In Canada , the salon owner is responsible for
withholding Federal and Provincial tax, Employment Insurance (EI) and Canadian Pension Tax.
The salon owner must also provide an annual W-2 form for each employee. The
W-2 form will indicate all taxes paid for the past year. It is important for all
employees to verify that the salon owner is submitting taxes under the correct
social security number so appropriate credit is given.
States have sales taxes on products and services. The salon owner is
responsible for collecting and paying these monies to the state on a monthly
or quarterly basis.
A permit is required to collect taxes, and the payments are a
permanent record of the salon's dollar volume. A salon owner must apply for a
state sales tax permit before collecting tax on products or services sold.
Income Tax is paid on the profits (earnings) of a business.
The Internal Revenue Service estab-
lishes criteria for reporting profit and loss.
Expenses and Income
In very basic terms, the financial success of a salon will be achieved when the salon's
income is significantly greater than its operating expense. Income refers to all payments
received from clients for services performed and home care products purchased.
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SALON FUNDAMENTALS
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"Did you know that as a
salon owner, you are
responsible for reporting
your employees' tips?"
Internal Revenue
Service (IRS) rules
require you to register
a daily log of all your
tips, which is income.
Keep a copy for your-
self and submit a copy
to your employer.
