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Employee Status: Discounted/Sale Rates = Discounted Payment

I’m currently practicing massage at a fitness center with employee hourly rate status, based on a 50/50 fee split with the owner. Every time we run a special, the discounted price gets passed on to me with a reduction of my hourly rate, which is a number of months out of the year that I’m earning less. And many clients will only book during sales, because now they’ve been conditioned.

Now, the owner has been approached by a member who’d like a monthly massage, to be deducted from her account automatically, at a discounted rate, and the owner wants to crunch the numbers. While I’d appreciate the increased volume of regular clients who’d take advantage of the offer, I’m certain the owner will want to pass on the discount to me once again. Full service at less than full service payment.

I have the use of the room. I pay for my supplies, do my own laundry, marketing, booking, record keeping, etc. Seems to me that I’m doing a lot, while she’s collecting money for use of the room, and administrative support that’s not extended to me.

I love my client base and don’t want to leave, but I’m growing resentful that I’m offering full service and all that goes with it on my end at a cost to both my finances and attitude.

Do other industries expect employees to earn less when they offer sale prices to customers, or is it just us? Anybody have any thoughts or real information to share?

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Permalink Reply by Ajay on March 5, 2019 at 4:04pm

I'm not perfectly clear on your situation, you mention you are a paid employee and yet you split profits too. Does that mean your 50% is divided through your clocked in you are working? Please verify my understanding of your situation. See below about employee vs contractor. You did not mention you are in a 1099 situation.

You are being taken advantage of IMO. This kind of BS is becoming more common in our industry.

Usually, in a typical employee scenario is you are paid a flat hourly rate, or you are paid a flat hourly rate and then a commission for each massage and at the end of the pay period your paycheck is whichever is greater. Spas do this a lot, but at least even Groupon or other discounts will not affect your commission.

Your situation typifies why to never do a percentage based rent unless you have it in your contract that any discounts come out of the business's cut. Few of us can foresee trends like what happened to you over time. I infer the arrangement was fine in the beginning but as time went on the discounting is getting out of hand.

I think you have three options. The first is to renegotiate your contract if you have one to reflect that discounts come out of her profits or that you a paid a flat commission on a sliding scale for every massage you do, i.e. so much for a 60 minute more for a 90 etc. Do you have a non compete or another type of agreement? Some states outlaw non competes. If no non-compete, it might be time to take your clients and set up your own practice.

The second is to go to a straight rental payment, no percentage basis. This is sometimes riskier on your end but if you have a steady clientele should be an easy transition, but difficult since it sounds like she is collecting the fees and has the advantage here.

Thirdly, go straight to 1099 commission situation if she is collecting the fees.

If I understand your situation correctly. Sounds like you are an independent contractor in the sense you are supplying your own materials, marketing, and supplies. If you're not reimbursed for the supplies especially if its your own table and other gear then definitely you are not an employee even if she is withholding income tax, Social Security, and Medicare from wages paid. She can get into a lot of trouble with the state and feds for treating a contractor as an employee. Check with an attorney or your states labor office to determine where you fall.

Employees are provided with everything they need to do a job by the employer, contractors provide their own tools and supplies.

If you are indeed a contractor being treated as an employee you have a lot of leverage to renegotiate your situation or burn her at the stake of federal law. Again if I understood your situation correctly. Regardless, sounds to me you should call your labor board first thing tomorrow.

Hope this helps. Cheers.

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Permalink Reply by Diane Dalton on March 5, 2019 at 5:05pm

Thank you for your thoughtful, thorough reply, Ajay.

To help clarify, my status is employee, with a W-2. I have no contract. At the start, the hourly rate was based on half of the massage fee charged. The room has a table. I supply and launder my own sheets, lotion, music, recordkeeping. To make it easier for all concerned, I book and confirm clients directly. The front desk takes payment, which is the extent of their administrative responsibilities.

I assumed that this was a flat hourly rate, regardless. Then, several times a year, for several months, we started running a special. It’s assumed that the amount off the regular rate is split between the owner and myself. This is where I have an issue. I’m doing exactly the same amount of prep, follow-up, and marketing, as well as providing a full hour of service for less money! When I bring it up, I’m told that I make it up in tips. Really?

And now with this EFT deduction up for discussion, I’ll be seeing the same clients who, in non-special months, pay full price. Except that now they’ll be paying a reduced rate because of the administrative convenience of automatic billing. And I’m expecting that this reduced rate will be passed on to me as well.

To top it off, the owner recently extended the rest of the staff a 50% discount on massages, and she offered to pay me .50 less than my usually hourly rate. Which I haven’t agreed to. Because it’s downright insulting. And the other LMT is booking staff massages, but they’re not booking with me.

It’s not a large amount of money we’re talking about here, but I earn it and I need it. And it sends me a message I’m not being valued, and I’m feeling pressured to keep quiet about it and go along. More than 30 years in the profession, and still treated like I should give it away!

Your last paragraph mentioned being a contractor who is being treated like an employee. Well, I’m actually an employee who is being treated like a contractor. So, where do I go to get some concrete support to work this out? Is it worth contacting the Labor Board in my State?

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Permalink Reply by Ajay on March 5, 2019 at 11:02pm

Diane wrote: Your last paragraph mentioned being a contractor who is being treated like an employee. Well, I’m actually an employee who is being treated like a contractor. So, where do I go to get some concrete support to work this out? Is it worth contacting the Labor Board in my State?

Diane: A contractor working as an employee or an employee working as a contractor... same thing. It's wrong and against the law.

So, yes, if it was me I would call the state Department of Labor & Employment to sort it out. If you fulfill the definition of a contractor and are working as an employee (or vice versa) they generally move pretty quickly. It's possible your employer is in the right but sounds "fishy" to me.

There are easy legal factors to determine this. If you are defined as a contractor you will be able to file a complaint and possibly claim back wages. This stuff varies widely state to state and often has a low maximum $ you can claim. The state and the IRS will impose fines on your employer if they are found breaking the law. You will need probably need a lawyer if you want to seek personal damages for all that time you were providing what the employer should have been paying for. Plus, you should consider suing for additional back wages and distress.

For all of the fine sounding rhetoric in many states, the Department of Labor & Employment is really on the side of the Business Lobbyists so they rarely work very hard on your behalf even on back wages due. The IRS and the State, on the other hand, will hit her fast and hard if indeed she's breaking the law.

Call the local Bar association and get a referral for an attorney. Don't use the yellow pages.

Cheers and good luck. Let us know how it turns out. Employers like this should be called out at every opportunity. You have a right to be mad as hell.

It's up to you how you want to handle it but at least verify what your status is. Use it as personal leverage or as I say let her burn on an IRS bonfire.

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Permalink Reply by Diane Dalton on March 6, 2019 at 6:09am

Thanks Ajay, for your supportive replies. I feel more empowered to speak up, for myself and on behalf of all of us. It'll take a while for this to resolve, and I don't know what action I'll take, but I don't feel so alone with it.

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Permalink Reply by Ajay on March 6, 2019 at 7:36am

Hang in there. Most Department of Labor & Employment have local offices for job placement/counseling, unemployment etc. be sure to ask them if there are any local legal advocate resources and support groups in your area.

States vary widely but see if they have a social worker attached to the office that you can talk it out with, they also usually in the know about the resources available to you.