For the aesthetic business owner, charting proper staff compensation isn’t easy. First, compensation doesn’t simply mean figuring the hourly or salary rate. It involves determining all the benefits your business will convey to your employee in exchange for the responsibilities and tasks you require. And second, it’s a calculation that must be unique for each potential staff member. Fortunately you can apply the same process to each hire you make.
This article walks you through that process.
Disclaimer: Information provided in this article is informational only and is not intended to replace legal or accounting advice. You should consult your CPA and/or attorney for employment advice for your business.
Compensation is a touchy subject
Salary, and all that goes along with it, is usually a touchy subject. In fact, the impetus for this article grew out of an Artemis Distribution private facebook group discussion about salary. An author cited ‘low rate of compensation’ as one of the top three mistakes spa owners make. And we (Body Contouring Academy) were asked to answer a question posed by a member of the group, “are there guidelines surrounding proper staff compensation?”
There are no universal guidelines to follow to determine proper staff compensation for aesthetic businesses but there is a process that, if followed, should guide you to a ‘proper staff compensation’ decision.
The process starts with a thorough understanding of what staff compensation is.
What is staff compensation?
Staff compensation includes the base hourly pay or salary plus all other monetary and non-monetary benefits, perks and/or rewards.
You can think of it as a staff compensation package.
That’s because beyond hourly wages or salary, your business may provide benefits and perks and/or other incentives as part of your compensation package.
Benefits are non-wage compensation that supplement your staff member’s actual pay. Think of ‘Benefits’ as pay for expenses that the employee would have to cover with their income.
Examples of Benefits
- Healthcare Insurance coverage, in whole or in part
- Retirement Plan
- Paid Time Off (PTO)
- Paid Holidays
Perks, Incentives, Rewards
Job perks, incentives and rewards are extra compensation on top of salary and non-salary compensation. And it’s these incentives that give employees real insight into your business’ culture, often speaking louder than just straight salary and the more typical job benefits.
Examples of Job Perks, Incentives and Rewards
- Flexible work hours
- Shorter work days near holidays
- Weekly team lunches
- Free or discounted services at your business
- Family discounts at your business
- Remote work options
- Educational opportunities
- Education reimbursement
- Free snacks and drinks
- In-house staff development
- Avenues for career advancement
A great business starts with assembling a winning team
The key to building a great aesthetic business starts with your team. And assembling a winning team starts with ‘hiring slow.’ Curious about ‘hiring slow?’ Check out our blog article. You can’t build a great body contouring business unless you hire the right people & fire the wrong ones
Hourly Wages, Salary, Commission, Bonus
What method will you use to pay your new hire?
Hourly and salaried employees differ in how they are paid and whether they are eligible for overtime.
Commission pay is based on collections, rather than hourly work.
- Employees paid by the hours worked are Hourly Employees. The amount of their paycheck is based on the number of hours they work in a given pay period.
- Hourly employees are classified as “non-exempt” meaning they are eligible for overtime pay at 1.5 their hourly rate.
- Employees paid by a set, predetermined salary are Salaried Employees. These employees are paid the same predetermined amount of compensation each pay period regardless of the number of hours worked.
- Most aesthetic business employees will not qualify under federal law for a salaried pay, with the possible exception of your Spa Manager, Practice Manager or Business Manager.
PRO TIP: Employment laws and regulations are governed and regulated by both federal laws via the Fair Labor Standards Act (FLSA) and by state-specific employment laws. You’ll need to be knowledgeable regarding both the federal employment laws and your state’s laws.
Are you considering commission-based pay? There are critical differences between salary/hourly pay and commission-based compensation. Take a look.
- With a commission-based pay structure, employees earn a percentage of a ticket sale.
- The percentage varies from business to business.
- Employees may earn straight commission only – or – they may be assigned a combination of an hourly wage plus commission.
- The FLSA (federal law) requires these employees to earn at least minimum wage even if their ticket sales percentages fall under that amount.
- This type of pay fluctuates and may not be as dependable for your employees as is hourly pay, i.e. seasonality of business.
- If you are paying hourly, your employees get their usual pay whether sales are up or down.
- You can consider paying them their hourly pay plus a bonus when sales are up.
- In our opinion, that’s a win-win. You’ve budgeted their pay already and you benefit when sales are up, so you can afford to reward your employees. It shows you appreciate them and acknowledge that they have helped in the business success.
Bonus based on Profit, not Sales
It’s a good idea to base your bonus on profits rather than sales. But you should realize that using profits as a basis for Bonus requires you to share some of your financial information with your team.
Team vs Individual Bonus
Team bonuses boost the efficiency, productivity and teamwork within your aesthetic business by pulling the group together to work towards a common goal. It removes the competition within your team to make individual sales and replaces that with a sense of ownership over the goals of your business.
Individual bonuses are meant to retain your top performers and do not motivate the group as a whole.
Tipping can be awkward. Since the general rule is 20% of the service fee, tipping can have a deleterious effect on your ability to price your service fees at the amount you’d like.
Even if your business accepts tips, tips are not a given. And 20% tips are certainly not a given. So it can be a very unreliable metric if you take tips into consideration when you are determining compensation.
Want to ditch tips and need a work around?
- At our medical spa, we set our fees high because tipping is not allowed
- We make our clients aware that our employees are paid well and don’t rely on tips to supplement their income.
- We urge clients instead to ‘reward’ our employees with good reviews and in turn, we reward (a dollar amount per review) our team members for each good review.
- A win-win.
- As a result, our employees have reliable income and reduced stress…and feel more like the respected professionals they are.
- Plus, they earn a financial reward when clients review.
Is your business Medical or Non-Medical? The rules are different.
Medical aesthetic businesses, as opposed to spas or other non-medical businesses, must adhere to many different rules. The way you compensate your team is just one of them.
Fee-Splitting is not allowed in aesthetic businesses that provide medical services
- Tips for any of your team are absolutely forbidden if your aesthetic business provides medical services.
- That’s because aesthetic businesses providing medical services, like med spas and physician practices, are governed by their state’s medical boards.
- Tips are considered fee-splitting.
- And in just about every state, medical boards strictly forbid fee-splitting.
What are some other examples of fee-splitting – and as such – not allowed for medical aesthetic businesses like med spas?
These are considered illegal in most states
- Individual or team bonuses based on sales or profits
- Profit sharing
**Your business can issue bonuses, but they must be based on something other than sales, income or profit…like the bonus pay our med spa’s employees earn for great reviews.
Feeling stressed or overwhelmed?
We can help!
Consider our Aesthetic Business Coaching to address questions like staff compensation.
Setting the salary range for a new hire can be tricky. You probably want to save money for your business by keeping the pay low. But that kind of thinking can may actually cost you more in the long run.
Consider the whole staff compensation package when setting salaries
As you’ve learned in this article, it is possible to attract top talent even if you cannot offer the most competitive paycheck.
You do it by creating an attractive staff compensation package by supplementing that paycheck with low-cost perks such as flexible hours, in-house education and educational reimbursement, discounts for services, family discounts, etc.
Factors to consider when setting salaries
Many factors influence appropriate rates of pay, but these factors carry the most weight.
- Geographic differences
Where is your business located?
Cost of living is a major consideration
- Years of experience and skill set
The more experience and key skills the candidate has the higher the expected rate of compensation
- Supply and demand
Is the demand for the skill set higher than supply? Or vice versa?
- Educational level and Licensure status
In-demand licensures and educational degrees will command a higher rate of pay
- Job description, skills requirements, responsibilities
Consider the job description. Pay should fit the responsibilities and expectations.
What skills are you requiring? What responsibilities will this candidate have? Will you expect your candidate to grow professionally?
How to know what compensation your aesthetic business can afford
It’s a fact. Labor expenses will take the highest percentage of your overall business revenue.
So before you decide what to pay an employee or potential employee, you should think about what you want to spend on the salaries of all of your employees. In other words, what percentage of your aesthetic business’s revenue do you want to dedicate to compensation?
When you create a budget for paying salaries, be sure to take all of these expenses into consideration
- Actual pay
- Employment taxes
- Paid time off (PTO)
- Cost of benefits such as health insurance, retirement plan, etc.
- Workers Compensation Insurance
What does a new employee actually cost your business?
According to the Small Business Administration (SBA), a new employee actually costs your business 1.25 to 1.4 times the actual monetary pay.
This statistic only factors in the payroll and employment taxes.
Important! Employees are an investment in your business
Keep in mind that your employees are a critical investment for you and your business. So just as you would with any investment in your business, consider your return on that investment. Consider things like
- How much revenue can she bring in to your business?
- How much time can she alleviate for you?
- What does she contribute to the team?
- Does she have the potential to rise to a leadership role or other higher role?
- What will be the cost of onboarding?
- What is the likelihood of employment longevity?
- What total compensation can my aesthetic business comfortably afford?
- What is the highest pay rate I can afford for my new hire and what would the candidate need to do to validate that amount?
- What is the going rate for the position I need to fill?
- Will my candidate possibly accept a lower rate of starting pay with assurances of (earned) pay rate increases following onboarding and/or probationary period?
- What do I expect my new employee to contribute to my team and my business?
- What is the new candidate’s worth to the growth of my business?
The actual total cost of your ‘staff compensation package’ will likely be more than the 1.25 to 1.4 times the actual wages quoted by the SBA, as it will include other variables such as benefits, perks, rewards and incentives.
Would you like more information about how to grow your aesthetic business?
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