If you’re an independent hairdresser or barber, you face slightly different tax rules than professionals in other industries. To stay compliant, it’s important to understand which laws affect you. Also, a bit of tax knowledge can help you reduce your tax liability and save money.
If you work from home or own your own salon, you are definitely a self-employed small business owner. If you rent a chair, you may also be self-employed, but the Canada Revenue Agency has strict rules on the classification of employees and self-employed individuals 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. To be considered self-employed, you need control over your schedule and how you complete tasks. You also need to carry your own profit-and-loss risk and have the right to hire people to help you. To explain, 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 are 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 micromanages how you cut chair, you are likely an employee.
Canada Pension Plan 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. For example, as of 2017, you must pay 9.9% on all earnings over $3,500 and up to $55,300. If you were an employee, you would pay half that amount in CPP, and your employer would pay the other half.
Employment Insurance Premiums
In most cases, self-employed individuals get to choose whether or not they want access to the Employment Insurance program. However barbers and hairdressers are in a unique category. If you are a self-employed barber or hairdresser who rents a chair, the salon owner must pay your EI premiums and the employer’s portion of the EI premiums to the CRA monthly. To determine your EI payment, the salon owner can use your actual earnings for the month. This should consist of your revenue minus business expenses. In the absence of this information, the CRA has a formula salon owners can use to estimate how much to pay.
If you’re a self-employed hairdresser or stylist, you get to write off your business expenses. This includes any reasonable costs you incur in pursuit of profit. For example, scissors, brushes, and styling products are all deductible business expenses, 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 often control their own businesses while 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 are classified correctly, that you pay CPP and EI as required, and that you track your business expenses closely.