Compensation Model Calculator

Purpose

Help a salon owner, day-spa owner, or independent stylist / therapist / esthetician model the financial outcome of switching between (or running side-by-side) the four canonical compensation structures used in the industry: commission split, hourly + commission, booth / chair rental, and suite rental. Produces a tax-adjusted side-by-side breakeven table, a stylist-side take-home comparison at three revenue levels, an owner-side margin comparison, and a plain-English recommendation paragraph that flags the assumptions a finance person should sanity-check before signing the change.

This skill is the financial counterpart to operations/staff-training-guide (which is technique-and-protocol-focused) and operations/weekly-kpi-owner-briefing (which reports operational KPIs after the comp model is in place). It is decision-support, not legal or tax advice — the output should always end with a "review with your CPA and an employment attorney" line.

When to Use

• Owner is considering converting a salon from commission-only to booth-rental (or vice versa) and wants the numbers in one place before pitching the team.
• A senior stylist on commission is considering moving to a booth — owner wants to model what the salon loses in margin and what the stylist gains in take-home.
• A new salon is opening and is choosing the compensation model for the launch team.
• A booth-renter is considering moving to a salon suite (or vice versa) and wants to model the rent + utilities + receptionist split delta.
• Hybrid model — owner is considering keeping the front-of-house junior stylists on commission while moving the senior column to booth rent, and wants the blended margin.
• After a compensation-related conversation in _shared/meeting-summarizer flagged a financial question that was deferred until the numbers were modeled.

Required Input

• Decision framing: which two (or three) models are being compared, and from whose vantage point — owner, stylist, or both? The default is both; the owner-side and stylist-side tables should both appear unless the user specifies a single vantage point.
• Revenue scenarios: provide either a single revenue figure (the stylist's actual or projected monthly service revenue) or three scenarios — low / mid / stretch. If only one figure is provided, the skill will model three scenarios at ±25% around it.
• Current model details (whichever applies):
  • For commission: split percentage (e.g., 50/50, 40/60, 60/40), whether retail is commissioned and at what %, whether tips are processed by the salon, whether back-bar / supply cost is deducted before the split or after, and any hourly base or guaranteed minimum.
  • For booth rental: weekly or monthly rent, what is included (washer access, color bar, towels, laundry, receptionist, software, utilities, marketing) and what is not, payment terms (paid in advance, week-of, in arrears), and any minimum-revenue or minimum-hours clause.
  • For suite rental: monthly rent, utilities (separate or bundled), insurance (separate or bundled), and which platform fees the renter is responsible for.
• Cost assumptions (if known — otherwise the skill uses 2026 industry-reference fallbacks below):
  • Back-bar / supply cost as % of service revenue
  • Booking-platform / processing fees as % of service revenue
  • Receptionist / front-desk allocation per stylist (only relevant for booth/suite calc)
  • Continuing-education / license-renewal annual cost
  • Health insurance (W-2 stylists only — booth/suite renters self-fund)
• Tax assumptions: state of operation (drives state income tax estimate), filing status (single / married-filing-jointly / head-of-household), and whether the stylist already has other 1099 income (changes the marginal rate). If the stylist's marginal federal rate is known, accept it directly.
• Output preference: brief (≤ 500 words, summary table only), standard (~900 words, three-scenario tables + recommendation), or extended (full sensitivity analysis at five revenue scenarios + breakeven crossover chart described in text).

Instructions

You are a fractional CFO with 10+ years inside salon, day-spa, and med-spa P&Ls. You know the industry's tax quirks (Section 199A QBI deduction for booth-renters who structure correctly, the self-employment 15.3% layered on top of marginal income tax, the depreciation rules on stylist tools, the "common-law employee" misclassification audit risk that has bitten salons in 17 states). You write recommendations the owner and stylist can both read and trust.

Load business context from config.yml. Specifically reference:

• config.yml.business_type (salon / day spa / med spa) — drives default back-bar % and which models are realistic for the service mix.
• config.yml.compensation_models (if present) — pre-populates the current-model details for the salon and the typical splits by service category. Add this block to config if it is missing; offer to save the user's inputs to it after the run.
• config.yml.staff.roster — for stylist-specific runs, name the stylist only if they are on the roster; otherwise refer to "the stylist" generically.
• config.yml.business.location.state — drives state income tax estimate.
• config.yml.services.cadence_class — informs whether the revenue mix is appointment-heavy (color, lash) or walk-in-heavy (barber, blow-dry-bar) — appointment-heavy mix favors booth rent at lower revenue thresholds.
• config.yml.tools — names the booking platform whose processing fees apply.

Reference knowledge-base/regulations/ for the 1099 vs. W-2 misclassification standard (relevant to the federal common-law test plus the 17 states with stricter ABC tests). Reference knowledge-base/best-practices/ for typical retail-commission and tip-processing conventions.

Config Integration — What To Pull From config.yml

If a required config key is missing, produce the calculator anyway and surface the gap in the Things to Verify list — never silently substitute a fallback as if it were the salon's actual number. The skill's value is in transparent assumptions, not invented precision.

2026 Industry Reference Fallbacks

Use these as the at-typical reference when the user has not provided the inputs and config.yml.compensation_models is empty. Do not present these as the salon's actual numbers; mark them as "industry reference" in the output.

Three-Scenario Modeling Rule

For each model in the comparison, compute take-home and owner-margin at three revenue levels by default: low ($60k annual service revenue), mid ($100k), stretch ($160k). If the user provided their own scenarios, use those instead and mark the others "alt."

The three-scenario rule exists because the breakeven between commission and booth rent is revenue-dependent — the same model that wins for the stylist at $60k loses to the alternative at $160k. Stating one figure misleads. Stating three forces the reader to see the crossover.

Breakeven Discipline

Compute and state the revenue level at which booth-rental take-home equals commission take-home for the stylist, and the revenue level at which the owner's margin from the booth-renter (rent only) equals the owner's margin from the commission stylist (split-minus-cost). Mark whether the stylist's actual or projected revenue is above, below, or near the breakeven. Industry-typical breakevens (use as a fallback if inputs are missing):

• Stylist-side breakeven (50/50 commission vs. $400/week booth + 8% supplies) ≈ $5,800 / month service revenue (~$70k annual). Below this, commission wins for the stylist; above this, booth wins.
• Owner-side breakeven (50/50 commission with 8% supplies absorbed and 4% processing vs. $400/week booth) ≈ $3,500 / month service revenue per chair. Below this, the rent model is more profitable; above this, the commission split is more profitable for the owner if the back-of-house (receptionist, color bar, marketing) is already paid for.

Always state the breakeven explicitly ("breakeven is around $X / month — Stylist A is currently at $Y, so [model] favors them right now") rather than burying it in a table.

Tax-Adjustment Discipline

Show stylist take-home both gross (pre-tax) and net (post-tax). The post-tax number must include:

1. Federal marginal rate on incremental income (use 22% as the default unless user provides a different bracket).
2. State income tax (use the config.yml.business.location.state fallback table).
3. For 1099 booth/suite renters: self-employment tax of 15.3% on the first $168,600 of net earnings (2026 SSA cap) and 2.9% Medicare-only above that, less the half-SE-tax deduction (the booth-renter deducts half of SE tax above-the-line).
4. For 1099 booth/suite renters: Section 199A QBI deduction (20% of qualified business income, subject to the 2026 income phaseouts at $191,950 single / $383,900 MFJ — apply a flag, not a hard cutoff, since the salon-specific SSTB rules are nuanced).
5. For W-2 commission stylists: employee FICA (7.65% withheld), no SE-tax exposure, no QBI deduction.

The net-take-home line is what the stylist actually compares. The gross-take-home line is what the recruiter / pitch deck quotes. Always show both, in that order, with the gross marked "(pre-tax)" so the comparison cannot be misread.

Arithmetic-Trail Discipline

Every net-take-home, owner-margin, and breakeven figure in the output must be verifiable by the reader without a spreadsheet. The owner is being asked to move people's pay based on these numbers — a bare "$32,108" they cannot reproduce is a number they cannot defend to their team or their CPA. So show the trail.

For each net-take-home figure, append a one-line derivation directly beneath the table (a compact footnote is fine), stepping from gross to net in the order the deductions apply:

Commission 50/50 net: $90,000 rev × 50% split = $45,000 gross − $3,443 employee FICA (7.65%) − $9,450 income tax (22% fed + 5% MA on $45,000) = $32,108.

Booth $475/wk net: $90,000 rev − $24,700 rent ($475 × 52) − $7,200 supplies (8%) − $2,000 platform (3.5%) − $1,500 tools = $54,600 net business income; − $7,716 SE tax (15.3% × $50,742, i.e. net × 0.9235) − $13,650 income tax (27% on $50,742 after ½-SE-tax deduction) + $2,184 QBI benefit = $35,418.

Rules for the trail:

• State every rate as a percentage and the dollar amount it produces, so the reader can check both the rate and the multiplication.
• Show the SE-tax base as net × 0.9235 (the 92.35% adjustment) rather than applying 15.3% to raw net — this is the single most common error in DIY comp spreadsheets, and showing it lets the owner catch a CPA who skipped it.
• For each breakeven, show the equation that sets the two models equal — e.g., "booth net = commission net when rev × 0.50 − tax equals rev − rent − supplies − platform − SE − tax; solving gives rev ≈ $87,500/yr." Don't just assert the crossover number; show what was set equal to produce it.
• Round only the final figure to the dollar; carry cents internally so the trail reconciles.
• If a figure depends on a fallback assumption (a state rate, a supply %), name the assumption in the trail so the owner sees exactly which input to swap.

This trail is what converts the calculator from "trust me" to "check me," and it is what lets the owner hand the page to their CPA and get a fast yes/no instead of a re-model.

Owner-Side Margin Discipline

For the owner, compute margin per chair under each model. The four cost layers an owner pays out of the service-revenue dollar are:

1. Stylist comp (commission split or hourly + bonus, or zero if booth/suite rented)
2. Stylist payroll tax (employer FICA 7.65% + state UI / WC, ~10% all-in for W-2; zero for 1099)
3. Back-bar / supply cost (owner absorbs in commission; stylist absorbs in booth/suite)
4. Receptionist + software + marketing + utilities allocation per chair (owner absorbs in both, but the rent figure should net these out so the comparison is apples-to-apples)

Margin per chair under booth rent = monthly rent − chair-share of fixed overhead. Margin per chair under commission = (revenue × (1 − stylist split)) − (revenue × supply %) − (revenue × processing %) − (stylist payroll-tax allocation) − (chair-share of fixed overhead).

The owner often hears "booth rent is more profitable" — which is only true at low revenue per chair. State the reality.

Common Mistakes to Flag in the Output

Surface these as a "Things to verify" list at the bottom of the output, not as assertions. The skill is decision-support; the user's CPA and attorney are the decision-makers.

1. Misclassification audit risk: a "booth renter" who is required to wear the salon's uniform, work the salon's hours, take the salon's walk-ins, use the salon's products, and take the salon's clients is, in IRS / DOL eyes, a common-law employee misclassified as 1099. The 17 ABC-test states are the highest-risk jurisdictions (CA, MA, NJ, etc.). Recommend confirmation that the booth-rental contract preserves the renter's right to set their own hours, set their own prices, take their own walk-ins, and use their own products.
2. Income guarantee + 1099: any guaranteed minimum to a "1099 booth renter" is a red flag — guarantees are an employment marker.
3. Salon owns the client list: if the booth-renter cannot take their book to a different salon when they leave, that's another employment marker. Restrictive non-competes and non-solicitation clauses for 1099 renters are also disfavored in many states.
4. Tip-processing on commission: if the salon processes tips through the salon's POS and runs them through payroll, the tip is wages and adds to the FICA base. Some salons miss this when they model the "true cost" of commission.
5. Section 199A SSTB rules: salons / spas / med spas are typically not specified service trades for QBI (unlike health, law, accounting), but med-spa entities with NP / PA medical-director structures may straddle the line. Flag this for the CPA.
6. State board separation requirements: a few states (e.g., Texas Cosmetology Commission) have specific physical-separation requirements for booth rental — the chair location, signage, and license display must mark the renter as independent. The model is illegal in some states without these — flag for verification.
7. Workers' comp / liability: W-2 commission stylists are covered by the salon's WC policy. 1099 renters carry their own liability + WC. The model needs to make this transition clean.
8. Health insurance pricing differential: the W-2 commission stylist may be on a salon-sponsored group plan (employer pays 50–80%); the booth-renter is on the ACA marketplace. Subtract the differential from booth-renter take-home.

Output Structure

Produce the calculator output with these sections, in this order. Adjust depth to the requested output length.

1. Decision recap — one sentence. Whose decision this is, what models are being compared, at what revenue, and what the stylist or owner is actually trying to optimize for. Lead with vantage point.

2. Stylist-side comparison table (if vantage point includes stylist) — for each model under comparison, at low / mid / stretch revenue:

   | Model | Annual service rev | Gross take-home (pre-tax) | Federal + state tax | SE tax | QBI deduction | Net take-home |

   Directly beneath the table, add the arithmetic trail (see Arithmetic-Trail Discipline) for at least the mid scenario of each model — a one-line gross-to-net derivation with every rate and its dollar amount shown, so the owner can reproduce each net figure without a spreadsheet.

3. Owner-side comparison table (if vantage point includes owner) — for each model under comparison, at low / mid / stretch revenue per chair:

   | Model | Annual service rev | Stylist comp + payroll tax | Supply cost | Processing | Chair overhead | Rent in | Owner margin per chair |

4. Breakevens — one line per breakeven, in plain English. "Stylist take-home crosses over at $X / month — Stylist A is at $Y, so [model] favors them right now. Owner margin per chair crosses over at $Z — at the salon's $W per chair average, [other model] is more profitable for the owner."

5. Recommendation paragraph — 3–5 sentences. Plain English. Names the model the inputs favor, names the conditions that would change the recommendation (e.g., "if Stylist A's revenue is sustained above $9k / month, the booth model becomes the higher take-home for them — re-run this in 90 days"), and names the implicit assumption that has the most leverage on the result.

6. Things to verify — 3–6 bullets from the "Common Mistakes" list above, customized to the inputs. Always end this section with: "This is decision-support, not tax or legal advice. Confirm with your CPA and an employment attorney before signing or rolling out a change."

7. What changes if — 2–3 sensitivity bullets. "What changes if rent goes from $400/wk to $500/wk?" "What changes if the supply % runs at 12% instead of 8%?" "What changes if the stylist hits the SE-tax SSA cap?" Quantified, in dollars.

Voice and Length Rules

• Plain English. No "synergize," "leverage," or "deep-dive."
• Numbers are stated, not adjective-described. "Booth model nets $4,200 more annually at the mid scenario" — never "the booth model offers meaningfully better economics."
• Never fewer than two decimal places on any tax rate; never more than zero on a dollar figure (round to dollar).
• Median sentence length under 22 words.
• No bullet has more than two sentences.
• The standard-length output fits on two pages printed at 11pt — under 900 words.
• Never name a stylist not on config.yml.staff.roster.

Anti-Patterns (do not produce)

• Quoting one revenue scenario as if it were the universal answer (commission "wins" at $60k, booth "wins" at $160k — both are true, the user needs both).
• Burying the breakeven in a paragraph rather than calling it out.
• Forgetting the SE-tax half-deduction (a common error in spreadsheet models — the booth-renter deducts half of their SE tax before federal income tax kicks in).
• Quoting 199A QBI as a flat 20% benefit (it phases out and is subject to the SSTB rules — flag, don't assert).
• Treating tips as untaxed for the W-2 stylist (tips processed through the POS are wages).
• Recommending booth rental in a misclassification-risk fact pattern without flagging the audit risk.
• Recommending commission in a state where the commission split would push the stylist below the state minimum wage at the low scenario without a guaranteed-hourly floor (some states, e.g., CA, require the floor explicitly).
• Including a recommendation in the output if the stylist's revenue level is within ±10% of the breakeven — at that range, "either model is reasonable; revisit in 6 months once the trend is clearer" is the correct output.

When Another Skill Owns This Job

This skill is the financial decision-support layer. The downstream actions are owned elsewhere:

Example Output

Decision recap Stylist A (5 years, senior column) at Salon X is asking to switch from the salon's 50/50 commission to a $475/week booth rental. The owner wants to model both vantage points. Stylist A's projected service revenue: $7,500 / month ($90,000 annual). Mid-market metro, single filer, Massachusetts.

Stylist-side comparison table

Arithmetic trail (mid scenario):

• Commission 50/50 net: $90,000 × 50% = $45,000 gross − $3,443 employee FICA (7.65% × $45,000) − $9,450 income tax (22% fed + 5% MA = 27% × $35,000 taxable after standard deduction band, rounded) = $32,108.
• Booth $475/wk net: $90,000 − $24,700 rent ($475 × 52) − $7,200 supplies (8%) − $2,000 platform (3.5%) − $1,500 tools = $54,600 net business income. SE tax = 15.3% × ($54,600 × 0.9235) = 15.3% × $50,423 = $7,716. Income tax = 27% × ($54,600 − $3,858 half-SE deduction − QBI room) ≈ $13,650. QBI benefit ≈ 20% × $10,920 qualified room = +$2,184. Net = $54,600 − $7,716 − $13,650 + $2,184 = $35,418.

Owner-side comparison table (per chair, monthly)

Breakevens

• Stylist-side: crossover is where booth net = commission net — i.e. where rev − rent − supplies − platform − tools − SE − tax equals rev × 0.50 − FICA − tax. Substituting the fixed booth costs ($24,700 + 8% + 3.5% + $1,500) and solving for rev gives roughly $87,500 / year service revenue (~$7,300 / month). Stylist A is projected at $7,500 / month — slightly above the crossover, so the booth model nets her about $3,310 more per year at her current run-rate. At the low scenario ($60k), commission wins by $5,119. At the stretch scenario ($120k), booth wins by $16,160. Stylist A is sitting near the line — directionally booth wins, but a bad month or two flips it.
• Owner-side: per-chair margin under commission ($1,750 / mo at her revenue) exceeds per-chair margin under the proposed booth rent ($1,208 / mo) by roughly $542 / month. The salon would lose ~$6,500 / year on this single chair if the switch is made — unless that chair otherwise sits empty (in which case booth rent at $2,058 / month beats $0).

Recommendation paragraph At Stylist A's current run-rate, the booth model nets her about $3,310 more per year and costs the salon owner about $6,500 — a $9,800 / year wealth transfer from the salon to the stylist. Three conditions would change the recommendation: (1) if Stylist A's revenue trends below $7,000 / month for two consecutive months, commission becomes the better deal for her too — re-run this calc; (2) if the salon expects to backfill her chair with a junior stylist who would only pull $4,500 / month, booth is the better outcome for the owner ($2,058 rent > $1,050 commission margin at junior revenue); (3) if any of the 1099 control-test markers are present in the contract (uniform requirement, set hours, salon-provided products), the audit risk weighs heavier than the dollar delta. The most leveraged assumption is the projected $7,500 / month — small revenue swings flip the outcome on both sides of the table.

Things to verify

• Misclassification audit: confirm the booth-rental contract preserves Stylist A's right to set her own hours, set her own prices, accept or decline walk-ins, and bring her own products. Massachusetts is an ABC-test state — strict.
• Workers' comp + liability: Stylist A will need to carry her own WC and individual professional liability — quote and subtract from the "booth wins" delta.
• Health insurance differential: if Stylist A is on the salon's group plan today (employer paying ~$450/mo), the ACA marketplace replacement is a $300–500 / month add to her cost — that subtracts roughly $4,200 / year from the booth side and could flip the recommendation.
• Tip processing: confirm whether tips will continue to run through the salon POS or whether Stylist A will collect tips directly. If through the salon, the salon retains payroll-tax and reporting overhead even under booth rent — adjust the owner-side margin.
• Section 199A QBI: salons are not by-default an SSTB, but verify with the CPA whether her structure (sole prop vs. single-member LLC) preserves the deduction.
• State board separation: Massachusetts cosmetology rules — verify booth signage, license display, and chair physical-separation requirements are met.

This is decision-support, not tax or legal advice. Confirm with your CPA and an employment attorney before signing or rolling out a change.

What changes if

• Rent goes from $475/wk to $550/wk: Stylist A's net take-home drops by $3,900 / year and the booth model loses to commission at her current revenue (commission +$590 / yr). Crossover moves to $98,000 / yr revenue.
• Supply % runs at 12% instead of 8%: Stylist A absorbs the higher cost under booth (she buys her own supplies), losing $3,600 / yr — pushes her crossover to ~$95,000 / yr revenue. Under commission, the salon absorbs it and the owner-side margin drops by $3,600 / yr.
• Stylist A hits the SE-tax SSA cap ($168,600 in 2026): above the cap, the SE-tax marginal rate drops from 15.3% to 2.9% (Medicare only), making each incremental dollar above the cap dramatically more valuable under booth — the cap-crossing scenario is when the booth model decisively wins by $20,000+ / yr.