Rent-A-Chair Agreements In The Hair Salon Industry

If you’re working in the hair salon industry, you’ve probably heard of Rent-A-Chair Agreements. 

Under a Rent-A-Chair Agreement, a salon can engage a hair stylist as an independent contractor, allowing them to manage their own clients out of the salon. 

Essentially, these agreements enable a stylist to operate their own business within another’s salon. 

In exchange, the stylist rents a chair and compensates the salon owner. This could be on a commission basis (a percentage of their takings) or a fixed amount for rent. 

While Rent-A-Chair Agreements are increasingly popular and can be beneficial for both parties, they can also be complex and challenging to navigate. 

But don’t worry! Whether you’re a salon owner or a stylist, we’ll guide you through everything you need to know if you’re considering a Rent-A-Chair Agreement!  

A Salon Owner’s Guide to Rent-A-Chair Agreements

As a salon owner, Rent-A-Chair Agreements are excellent if you want to expand your team of stylists without hiring additional staff. An extra stylist can help to increase the range of clients your salon can cater to. 

But it’s not as simple as making space for an extra chair in your salon!  

Here are some key points you need to be aware of if you’re considering Rent-A-Chair Agreements as a salon owner. 

Contractor vs Employee

When entering into a Rent-A-Chair Agreement, your first consideration should be whether you’ll treat the stylist as an independent contractor or as an employee. 

Getting this wrong can have serious consequences, so it’s crucial you’re informed and don’t fall into the trap of “sham contracting” under New Zealand’s Employment Relations Act. 

The Ministry of Business, Innovation and Employment (MBIE) often scrutinises Rent-A-Chair arrangements to ensure salons aren’t misclassifying employees as contractors. 

So, how can you protect yourself? 

Essentially, you’ll need to limit your control over the stylist and ensure you’re treating them as a contractor, not as an employee.  

If you structure your payment arrangements with the stylist as if they’re an independent contractor (i.e. you don’t pay holiday pay or sick leave), but treat them like they’re an employee (i.e. you control what they do and when), you’ll risk penalties for sham contracting. 

Sham contracting is a complex issue, and there are a number of factors a court will consider when determining whether a staff member is an employee or contractor. 

To navigate these arrangements correctly, you can learn about the differences between independent contractors and employees here. Of course, be sure to seek legal advice if you’re unsure!  

Subleasing

Entering into a Rent-A-Chair Agreement can complicate your relationship with your landlord. 

This is because renting out a chair might be seen as ‘subleasing’, which could be restricted under your lease agreement. 

Before you enter into a Rent-A-Chair Agreement, it’s important to review your lease to confirm that subleasing is permitted.

Your lease may require landlord approval to sublease any part of the premises. Alternatively, subleasing may be completely prohibited.

You might negotiate with the landlord for their approval of the sublease, or consult a lawyer about how to proceed.

Brand and Client Experience

Maintaining a consistent client experience with independent contractors in your salon can be challenging. 

While you can require employees to wear a uniform and follow specific processes, independent contractors are not bound by these rules.

As a result, you may risk delivering an inconsistent brand and client experience, which could harm your salon’s reputation. 

Products

Independent contractors typically bring their own tools, products, and equipment.

In the case of Rent-A-Chair Agreements, contractors are not obliged to use the products your salon offers. 

If your salon has a partnership with a specific brand, you should inform this brand if independent contractors are using other products in your business.

And, if the stylist wishes to use your products, you could charge them additional costs for this. Remember, these stylists are running separate businesses. 

Day to Day Functions 

Independent contractors have considerable freedom over their work. 

They can  choose their own hours, decide how many clients they wish to take on, and are not obliged to accept work you offer. 

This can introduce uncertainty into your salon’s operations.

To establish some certainty, your Rent-A-Chair Agreement could require that the contractor work during general salon opening hours.

However, to avoid sham contracting risks, you’ll need to be cautious about how much control you exert under the Rent-A-Chair Agreement.

If relinquishing this level of control concerns you, you may prefer to hire a casual employee instead. 

Conversely, not having to manage an independent contractor can free up time for other aspects of your business.

Client Payments

Booking facilities and payments should ideally be managed separately by independent contractors, as they are running their own businesses and are responsible for their finances. 

This raises practical considerations, such as administrative costs.

Consider the time you’ll spend managing payment arrangements when determining how much you earn from the stylist.

Training 

If you want to ensure consistency in techniques or styles throughout your salon, working with contractors could pose a challenge. 

As an employer, you can train your staff to perform services following specific processes and packages. 

To maintain some consistency, your Rent-A-Chair Agreement could require that contractors are competent in certain styles. 

What’s The Gist?

There are two key legal risks salon owners should be aware of with Rent-A-Chair Agreements: misclassification of employment status and subleasing issues. 

Additionally, there are commercial considerations that may impact your operations. 

If Rent-A-Chair seems suitable for you, you can speak to a lawyer about a Contractor Agreement with Rent-A-Chair provisions. 

A Stylist’s Guide To Rent-A-Chair Agreements 

If you’re a stylist, working as a contractor may seem like an unconventional approach. There are many benefits, as well as risks, to being your own boss. 

As a contractor, you’re somewhat of a ‘free agent’. However, this freedom comes with more risk and personal expense than if you were an employee. 

What Are My Entitlements? 

As a contractor, you won’t be entitled to many of the benefits that employees receive.

You won’t have access to paid leave, holiday pay, and several other entitlements (read about them here). 

You are also responsible for managing your own payment systems, invoices and clients. 

While the autonomy of running your own business is appealing, it’s important to remember that you won’t receive paid leave and will only earn from your clients.   

Do I Need Insurance? 

As an independent contractor, you should definitely have your own professional indemnity insurance and personal injury insurance.  

If you are using and/or selling your own products, product liability insurance is also advisable.

Insurance brokers can assist you in finding the right industry insurance. These costs should be considered when structuring your payment arrangements with the salon. 

Equipment 

Typically, as a contractor, you bring whatever tools and equipment you need to do the job, from scissors to hairdryers to treatments and dyes. 

Supplying your own products can be costly, and you may find yourself competing with the salon’s products. 

There may be times when you don’t earn enough to cover the cost of your products for clients. 

This is a significant risk of being a contractor. To mitigate this, you might want to negotiate flexible terms with your suppliers, so you’re not obligated to purchase a set quantity of products. 

Should I Share Clients With Other Stylists?

Occasionally, a client may need an appointment when you’re fully booked. What do you do? 

The client might choose to see other staff in the salon for convenience. This is likely better than the client going to a different salon. 

It’s important to reach an agreement with the other stylists on how to share clients, as well as any profit sharing that may apply.

What’s The Gist?

With great freedom comes great responsibility! 

Being a contractor can be an excellent arrangement, allowing you to work as you wish. 

But it also comes with additional responsibilities, costs, and risks. 

The best way to protect yourself and your business as an independent contractor is by entering into a comprehensive Rent-A-Chair Agreement with the salon owner.

What Needs To Be In A Rent-A-Chair Agreement?

A Rent-A-Chair Agreement should cover aspects such as the type and standard of services the contractor will provide, insurance requirements, confidentiality, indemnities, and termination clauses.

Depending on your situation, this agreement may also need to include industry-specific items, such as sharing products, client sharing, and sub-lease obligations.

Generally, Rent-A-Chair Agreements are similar to traditional contractor agreements. However, the key difference is in the payment structure. 

Payments could be structured in various ways, for instance: 

• Fixed Rent: the stylist pays the salon owner a set amount of rent periodically;
• Commission Percentage: the salon owner takes a percentage of the stylist’s client earnings;
• Pay Per Use: the stylist pays each time they use the salon; or
• A combination of the above (e.g., a minimal rent plus a commission). 

Each payment model has its own risks and benefits for stylists and salon owners. 

For instance, fixed rent provides certainty for a salon owner but can be risky for a stylist if they don’t attract enough clients to cover rent costs. 

When considering payment structures, think about the level of certainty and flexibility you need and consult a lawyer for the best approach for your situation.

What To Take Away

Before entering into a Rent-A-Chair Agreement, it’s crucial to consider how you should structure your relationship with the stylists or the salons you collaborate with. 

If you’re engaging or working as an independent contractor at a hair salon, then it’s essential to have a Rent-A-Chair Agreement in place.

These agreements carry risks for both salon owners and stylists. 

However, Rent-A-Chair Agreements can be mutually advantageous if financial risks are shared. 

Agreeing on key details in writing will not only protect the parties involved but will also prevent many day-to-day issues and confusion in the future.

Get In Touch With Us

If you need assistance determining whether an independent contractor relationship is right for you, or if you’re ready to draft a Rent-A-Chair Agreement, we’re here to help! 

Contact our team at 0800 002 184 or [email protected].

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