If you’re an independent hairdresser or stylist, you enjoy freedom in how you conduct your business, the hours you keep, and the clients you choose. With this freedom also comes the responsibility of managing your own business finances. It’s important to keep in mind that hairdressers and stylists are subject to slightly different tax rules than professionals in other industries. Also, a bit of tax knowledge can help reduce your tax liability and save you money when you file your hairdresser or stylist tax return.
Are Hair Stylists Independent Contractors?
If you work from home or own your own salon, you’re definitely a self-employed independent contractor. If you rent a chair, you may also be self-employed, but the Canada Revenue Agency (CRA) has specific rules on the classification of an employee versus a self-employed individual hairdresser or stylist in this situation. Generally, if the salon owner controls your schedule, sets your rates, dictates which clients you see, and supplies your tools, you’re an employee.
If you want to file as self-employed, you need control over your schedule and how you complete tasks. You also need to manage your own profit and loss risk and have the right to hire people to help you. Imagine you pay chair rent to a salon owner. You also do your own marketing, buy brushes and scissors, and have control over which clients you see. In this case, you’re likely self-employed. On the other side of the coin, if the salon owner pays you an hourly rate, doesn’t allow you to turn down clients, and provides guidelines for how you cut and style hair, you’re likely an employee.
Canada Pension Plan (CPP) Contributions
If you’re self-employed, then you’re responsible for paying Canada Pension Plan contributions to the CRA, and you must pay both your portion and the employer portion. As of 2018, you must pay 9.9% on all earnings over $3,500 and up to $55,900. The cap increases to $57,400 in 2019. As an employee, you pay half that amount in CPP contributions, and your employer pays the other half.
Employment Insurance (EI) and Salon Chair Rental Laws
As a self-employed individual, you generally get to choose whether or not you want access to the EI program. However, self-employed barbers and hairdressers who rent a chair from a salon owner get special consideration from the CRA. In this case, the salon owner must pay the employer’s portion of the EI premiums to the CRA. To determine your EI payment, the salon owner can use your actual earnings for each week. This should consist of your revenue minus business expenses.
But what if you don’t want to share information about your operating expenses with the salon owner? That’s okay, because the CRA has a formula salon owners can use to estimate how much to contribute to EI. First, the facility owner takes your income up to the maximum insurable amount, which is $51,700 in 2018, and then does two calculations:
- Divide your maximum insurable amount by 390, and multiple that amount by the number of days you work in that week.
- Divide your maximum insurable amount by 78.
Whichever of those amounts is smaller is the EI contribution amount the salon owner should submit for that week.
One great benefit of running your own hairdressing or stylist business is that you can deduct business expenses from the income the CRA taxes you on. This includes any reasonable costs you incur in pursuit of profit. For example, scissors, brushes, and styling products are all tax deductions for self-employed hair stylists, but you may also include marketing costs, legal fees, and multiple other expenses as long as they’re directly related to your business.
Hair stylists and barbers often have a unique working environment. They control their own businesses while possibly renting space in a salon and working alongside other hair professionals. To ensure tax compliance as an independent stylist, it’s critical to ensure you classify yourself correctly, pay the necessary CPP and EI contributions, and track your business expenses closely. Quickbooks offers tools that make this easier than ever. QuickBooks Online can help you maximize your tax deductions. Keep more of what you earn today.