I am getting a lot of questions about pay structures for employees. The first person you should consult is an accountant or business attorney. I also suggest that if you have more than a couple employees you use a human resource outsourcing service to set up your accounts and handle payroll and taxes. I am not endorsing this company but if you look at their website you will better understand human resource outsourcing. America’s Back Office –americasbackoffice.com. I am sure there are similar companies in your area. Just search for human resource outsourcing service. These companies take care of all payroll, taxes and labor law compliance issue for you for a fee which is less expensive that doing it yourself or hiring someone. You can also get a lot of information from the US Department of Labor website.
CUTTING TO THE CHASE----------
So here is my recommendation. Pay minimum wage or a bit more—like $9 per hour for all hours worked and then pay a bonus/commission of $5-$10 per session based on massage therapist experience and volume. The potential raises would be in commission amount not the base. Tips in the service industry belong totally to the employee and are not factored into wages costs.
It is clear that the massage therapy delivery in the US is shifting to employees and away from self-employed. This blog IS NOT about if one is better than the other. The focus is for those who are considering hiring employees and or shifting from some sort of group practice model using the very confusing independent contractor model. If you want to create an environment for other massage therapists to work and you want to control how they provide services such as scheduling, pricing etc. then learn about employer/employee set up. Otherwise rent space and let the renters run their own business.
If you are the business owner-employer you are taking the risk. Bottom line is that if you do not make a profit you will not stay in business and you deserve to be paid at least as much as your employees. As the business owner you WILL work more hours than the employees and you WILL have to handle all the non-massage aspects of business and the inevitable unexpected events that will occur such as the plugged toilet or the no show employees. Even if you hire a manager-they are still and employee and ultimately THE OWNER(S) ARE RESPONSIBLE.
Ok--- in order to figure out how much to pay an employee you have to know what your gross income is, cost of ALL overhead-wages being the largest chunk in a service based business- what you need to keep in reserve for the emergencies and unexpected costs AND you are self-employed so you have to pay all your own taxes including self-employment taxes. By the way the various massage franchise business owners are individual small business owners—NOT a big corporation. Those that own a franchise/chain pay for the use of the brand name and support services.
I am going to attempt to make this simple and basic. Sometimes when I do this some information is left out. This blog is only a guide based on a bunch of questions I have been getting. Return to the first paragraph please. What this blog can do is help formulate intelligent questions to ask the experts. Now for some simple math.
For example purposes lets figure out a break even analysis on one employee for one week based on the current typical work schedule for massage therapists. Also I am going to use $50 per 60 minute massage session. If you want to figure this out on a higher massage rate than you can use this example to do the math.
A full time work week for a typical massage therapist is 30-35 hours doing 20-25 massage sessions. Most massage therapist do not work full time- they work part time. I have another blog on that. So let’s use a common ¾ time schedule or 25 hours doing 15-18 massage sessions. For math purposes the common massage employee is going to work 25 hours per week and perform 15 massage sessions at $50 a session. This mean this employee generated $750 of gross income for the business in a work period (25 hours 15 massage sessions over 7 days).
Based on this $750 of gross income let’s look at the breakdown. Wages expenses for a service business such as massage therapy should NOT EXCEED 50% OF GROSS. We are going to use 50% of gross to cover all employee expenses including wages, payroll taxes and cost of maintaining payroll and human resources services. We are not providing any benefits such as paid vacation or contribution to retirement or health care costs. The employer must match a percentage of employee taxes and withhold for income taxes sending $ to the IRS. The matching tax percentage is 7.5 and typical service cost for maintaining payroll is another 7-10 % so using 15% as a base every $100 paid to an employee cost the employer $115.
The employee generated $750 of gross income so payroll costs for that employee should not exceed $325 for that pay period. The employee will not see $325 because of the 15% needed to cover payroll taxes and costs and also the withheld income taxes. The employee cost $55-$60 for the pay period and you will need to withhold about $25 for income taxes.
$325-$55 (cost)= $270. This $270 is what you can pay the employee for the pay period. Their check will be about $220 after income tax is withheld. This works out to about $11 per hour for all 25 hours at work. This seems like an awful hourly wage but if the person was self-employed they would end up making about the same per hour (but most do not want to admit it). And if that same employee did just 2 more massage sessions during that time frame they would increase hourly by $4 per hour or $15.
Most employers attempt to keep wages costs in check by paying minimum wage (and a bit more) base for all hours worked and a bonus (commission/ per session fee) for each massage session (60 min, –yes more for a 90 minute). So the math for this looks as follows: $9.00 per hour base x25 hours worked = $225 base wages. The employee grossed for the business $750 and $325 is available to cover wages and employee costs. The $225 in base pay will cost the employer about $30 bringing employer wages cost to $255. $325 (available)-$255=$70 available to pay in bonus/commission. The employee provided 15 sessions. $70 / 15 massage session= about $5 bonus for each massage session. This still sounds terrible so let’s figure it the way most are attempting- paid per massage hour and as long as the employee makes at least minimum wage for the 25 hours at work the employer is legal. Let’s continue to use the $9hr. as the minimum wage. If the massage therapist is paid per massage hour then you could say you are paying them $18 per massage hour which now sounds better but this is really kind of sneaky since that $18 x 15 sessions still ends up being $270.
Sneaky is not very ethical however during this transition period it is essential that employees are thoroughly informed about how the pay structure works.