When the pandemic hit, salons were hit harder than any other industry, were the last to reopen, and will likely be the first to close again. Many establishments will never reopen. Between February and April, the number of jobs at employment-based salons dropped by 84%, hitting every Main Street and shopping mall in the United States. Only 93,000 people were on payroll at employment-based salons in April — down from 569,000 in February. This represents the fewest number of salon jobs in well over five decades.
A solution to provide salons, barbershops, and spas with the immediate cash infusion they need to keep their businesses afloat would be to allow access to an existing credit in the IRS tax code, the 45B FICA Tax Tip Credit.
The professional beauty industry (including licensed cosmetologists, barbers, nail technicians, estheticians, and massage therapists) is the second-highest tipped industry in the U.S., just behind the restaurant industry. Congress passed the 45B FICA Tax Tip Credit in 1993, allowing restaurants to claim a dollar-for-dollar tax tip credit on the employer portion of FICA taxes that businesses pay on tips that employees receive directly from their customers.
Regarding taxes and tips, salons and barbershops should be treated the same as restaurants.
Imagine: your favorite salon or barbershop, closed. Your hair, unruly. Your kitchen scissors — maybe I can do this? Your mirror proves you shouldn’t have done that! You go to your salon or barbershop, now allowed to reopen. You are so grateful that you tip $100 to show appreciation and because you know they could not work during the coronavirus shutdown.
Consider that for all the income employees make, the business is responsible for paying 7.65% for the employer’s portion of FICA taxes, plus state unemployment tax, plus 3% in credit card processing, plus credit card fees on a tip that the business facilitates on behalf of the employee. Every tip is thus money that a business does not get, yet has to pay fees and taxes on. Every $100 in tips is a joy to employees, but it becomes an $11.18 burden on the business when it’s all paid for, even though that business never sees a dime of it.
This has been happening to all salon and barbershop owners for years, and the tax hit is especially damaging right now.
I am grateful for my own representative in Congress, Rep. Darin LaHood, along with Rep. Suzan DelBene of Washington, Sen. Ben Cardin of Maryland, and Sen. Rob Portman of Ohio, who have led a bipartisan, bicameral effort to provide tax parity to the beauty industry with H.R. 1349 (currently 23 co-sponsors) and S. 2634 (currently two co-sponsors).
Data from the Professional Beauty Association shows that 83% of salon businesses have fewer than 10 employees. These small businesses, owned 60% by women and 34% by minorities, employ a workforce of 1.3 million professionals. Nearly 20,000 beauty industry owners have signed a letter to congressional leadership, asking them to extend the 45B FICA Tax Tip provision to the beauty industry temporarily in the next relief package.
As a small business owner since 2006 of Five Senses Spa, Salon & Barbershop, located in Peoria, Illinois, I employ about 20 mothers, fathers, students, and people from all walks of life and ethnicities from our local community. On March 22, our governor mandated nonessential businesses to stay at home, and our team was not able to work for 10 weeks. On March 25, I humbly showed my employees through the steps of submitting unemployment claims.
Although I was able to secure a Paycheck Protection Program loan in the second round of funds, I remain uncertain of the benefit due to the question of full-time equivalents and hours-worked forgiveness guidelines. I have been challenged with employees requesting several months of unpaid extended leave of absence, employee resignations, and employee requests to reduce their hours. In my 14 years in business, I have never felt so disheartened, and I know that there are many other small business owners who are in the same position.
Like so many fellow beauty industry owners who have been affected by the economic crisis resulting from the pandemic, I have only been able to open on a limited basis, and I may be forced to close again. As states are now reconsidering another temporary shutdown, small salons, barbershops, and spas are in desperate need of help to make it through this unprecedented emergency.
If these struggling businesses do not receive this much-needed relief in this next package, a substantial drop in employer-based salon, barbershop, and spa jobs will inevitably follow as more workers elect to strike out on their own, accelerating the shift in industry jobs from employer-based arrangements to the underground economy. Extending the 45B tax credit already available to restaurants would ensure tax parity and provide the beauty industry with a needed lifeline to keep afloat during the pandemic.
Paola Hinton is the owner of Five Senses Spa, Salon & Barbershop in Peoria, Illinois.
