Salon and Spa Payments: Deposits, Tips and Booth Rent

Deposits and card-on-file cancellation fees

Holding a card to charge a late cancellation later is a stored-credential arrangement. Visa's rules say that before a merchant stores a payment credential it must get the cardholder's express informed consent, and that requirements for specific transaction types must be clearly displayed when the cardholder consents and shown separately from the general purchase terms. Visa's table for stored-credential transactions also says the merchant must refund the full amount paid if the merchant has not followed the terms and conditions of the sale or service. In practice, show your deposit and cancellation terms at booking, capture the client's agreement, and keep that record with the appointment. Our card-on-file guide covers Visa's consent and first-transaction rules in detail.

Taking the full price in advance

Some salons take full payment for packages or special-occasion services at booking. Visa limits which merchants may process an advance payment for the entire purchase amount before services are delivered: travel and entertainment merchants, custom goods or services, face-to-face sales where items will be provided later, and recreational services related to tourism and travel. If you want to charge the whole price upfront, ask your acquirer whether your merchant category allows it, or take a partial deposit instead.

Card tips on the terminal

Prompting for the tip on the terminal before the charge is completed keeps the receipt accurate and avoids adjusting amounts afterwards. Assign each tip to the stylist who did the service at the point of sale, because that record feeds both payroll and tax reporting.

Card fees on employee tips

The Department of Labor's Fact Sheet #15 says that where tips are charged on a credit card, the employer may pay the tipped employee the tip less the percentage of the credit card processing fee, but may not deduct more than the actual fee charged on that transaction. The same fact sheet says the tip must be paid no later than the regular pay day and may not be held back while the employer waits for the card company to pay. If you pass a share of the card fee through to stylists, base it on the actual fee for the transaction, keep the calculation on file and check state wage law, which can be stricter. Illustrative example only, with made-up round numbers: a client leaves a $20 tip on a card sale whose processing fee works out to 3% of the total. Deducting 3% of the tip, 60 cents, stays within that limit; taking a flat $1 would not.

Tip reporting for employees

The IRS says cash tips include tips paid by credit card, debit card and gift card. Employees must report cash tips to their employer in a written statement unless the tips with that employer total less than $20 for the calendar month, and the report is due by the 10th day of the following month. Your POS tip report by stylist is the starting point for those records, so check it before payroll runs.

Booth renters and who takes the payment

Whether a stylist is an employee or an independent contractor is not decided by what you call the arrangement. The IRS says all evidence of control and independence must be considered, grouped as behavioral, financial and type of relationship, and that there is no set number of factors that decides it. The IRS also says self-employed individuals, including certain hair stylists, who receive tips report them as business income. Where renters take their own clients' payments, each renter usually needs their own merchant account so sales, tips and chargebacks sit with the business that earned them. If renters' sales run through your account, you take on their disputes and refunds and blur the record the IRS asks you to document. Get advice before settling the structure.