Converting Commission Wages to Equivalent Hourly + Commission Blend Wages - PART ONE
Some groomers and stylists don't know yet that there are places where states do not allow commission only wages. That's right, the old commission wages alone is gone. It may work for the federal tax agencies but not states. So what do employers do when they cannot pay commission wages ALONE.
Hourly plus commission. Sure some groomers keep their hours logged daily and also figure separately what they would have made in the "old days." Then they are paid the higher of the two at say the end of the week. Turns out some states say nope to this system. Hourly rate MUST be involved in the calculation in these states.
When commission only wages for full-charge groomer/stylists (W-2 employees) just don't work, or are no longer legal, what do you do? The goal is to pay the groomer/stylist the same gross wages whether paid by commission only, or hourly plus a commission.
If a groomer/stylist is currently earning 50% commission alone, the hourly can be minimum wage for all hours worked and then commission. However, the employer doesn't want to continue at 50% commission plus be paying hourly minimum wage on top of 50% commission. Adding hourly guaranteed wage to 50% commission would mean the actual cost for the employer would jump to perhaps the same as 65% commission. Today most employers paying 60% to W-2 employees are barely profitable when the business essentially sells only grooming services. They have employer taxes and contributions yet to pay which could easily add another 15% on top of the 65% commission, and they have not yet paid business overhead like rent, insurance, supplies, utilities etc. So if you are paying hourly now plus a commission, what is the new commission rate where the groomer/stylists make the same gross wage whether on 50% commission alone using hourly and adjusted commission.
Keep in mind these groomer/stylists are employees and not 1099 independent contractors.
Here is an example of just one possibility. Let's assume the following variables for one day in grooming salon for a groomer/stylist.
Hours Worked: 8 hours
Pets Groomed: 7
Grooming Fees: $45, $60, $55, $80, $56, $62, $44 for a total of $402 sales of grooming services.
Minimum Wage: $14 an hour
OLD SYSTEM 50% COMMISSION
50% Wage = $201 gross wage (before withheld taxes) for the groomer/stylist
NEW SYSTEM HOURLY PLUS COMMISSION
Note: Remember commission only no longer legal. Must be both in wage calculation.
Hourly Portion: 8 hours @ $14 = $112 gross wage (before withheld taxes)
Commission Portion: We have to calculate the commission rate first. This is tricky math to calculate.
$201 was the 50% commission only gross wage. Under the new hourly plus commission $112 is paid hourly, and the difference by commission. Therefore deduct $112 from $201 = $89 gross wages left to be paid to the groomer/stylist.
So what is the equivalent commission rate? Tricky, be careful.
Go back to the $402 total sales of grooming that day. Divide that into $89 and you get 22% commission.
On this day the groomer/stylist's gross wages whether 50% commission "like the old days" or the new Hourly Plus Commission were $201 gross wages (before payroll deductions). See below:
50% times $402 sales = $201 gross wages (before withheld taxes) for the groomer/stylist
Hourly Plus Commission
Hourly portion: 8 hours worked @ $14 an hour = $112 gross wages (before withheld taxes)
Commission portion: 22% commission times $402 grooming service fees = $88.44.
Add hourly plus commission $112 plus $88.44 = $200.44
This groomer/stylist made just 56 cents less working hourly plus commission versus straight commission. We could easily bump the 22% commission rate up to adjust the gross wages to $201 and compensate for the 56 cents difference.
The groomer/stylist once paid 50% commission is now making the same gross wages with hourly plus commission.
So everything is fine now? No. Not at all. What if the next day the groomer/stylist did the same total sales of services but only worked 7 hours? The stylist under hourly plus commission would earn less, $14 less actually which is one hour's pay.
Now what do we do?
In our next post, Part Two, we will look for a solution. Is it enough to always pay the minimum 8 hour wages for any workday?