Accounting for personal care & salons.

Questions worth getting ahead of

• Chair renters or employees
• Your EI obligations for self-employed stylists
• Handling tips and service charges
• GST/HST on services and retail products
• Reporting payments on T4 or T4A slips

Chair renter or employee is a question of facts

A stylist can be an employee or self-employed, and the CRA says the facts of the whole relationship decide it, not the label in an agreement. It looks at control, who provides tools and equipment, the ability to hire helpers, financial risk and the chance of profit. Its own example of a self-employed chair renter pays a fixed monthly amount for a chair, supplies their own small tools and products, and books their own clients. If someone is an employee, you must deduct CPP, EI and income tax. Bring the written agreement and a description of how the person actually works.

Self-employed barbers and hairdressers can still be an EI matter for you

The CRA’s special rule says that if you own or operate a barbering or hairdressing establishment, you may be treated as the employer of a self-employed barber or hairdresser for EI purposes, even if you pay them nothing. You then pay both the employee and employer shares of EI premiums, and the worker remains responsible for their own CPP and income tax. The CRA says manicurists, beauticians and massage therapists are not covered by this rule. Ask your accountant how it applies to each arrangement before you set rent or commission levels.

Report payments on the right slip

How you report depends on the arrangement. The CRA says that if you are not the EI employer of a self-employed barber or hairdresser, you generally report payments for their services on a T4A slip. If you are the deemed EI employer, it describes a T4 slip with a specific employment code and the worker’s insurable earnings. These differences make good records important. Keep a payment ledger by stylist, along with the agreement and any statements, so that the correct slip and amounts can be determined at year-end.

Treat tips and service charges differently

For payroll, the CRA distinguishes controlled tips, which you hold or distribute through a formula or pool, from direct tips paid by the customer to the employee. For controlled tips you withhold income tax, EI and CPP and report them on a T4 slip. For direct tips you do not withhold or report them, though the employee still reports them as income. For GST/HST, a tip that a customer gives freely is not taxable, but a mandatory or suggested amount you add to the bill as a service charge is. Decide which approach your salon uses and apply it consistently.

Charge GST/HST on services and retail products

The CRA lists barber and hairstylist services as taxable, so a registered salon charges GST/HST on them, which in Ontario is the HST. Products sold to clients are generally taxable too. Whether you must register depends on the small supplier rules, which turn on your taxable revenue over a set period, including that of associated businesses. Keep services, retail sales and any chair rent you collect in separate accounts so that the amounts reported on a return can be checked back to your records.

Support to discuss with Sora