Commission payments require different bookkeeping treatment depending on whether your stylists are employees or independent booth renters. Getting this distinction right matters for accurate books and tax compliance.

For commission-based employees, you track each stylist’s service revenue, calculate their commission percentage, and run it through payroll. The commission is a payroll expense subject to employment taxes. Set up your bookkeeping software to track sales by stylist using classes or sub-accounts so you can see who’s generating revenue and what their commissions cost. When you run payroll, the commission amount shows up as wages with taxes withheld just like any other employee pay.

If your stylists are booth renters paying you a weekly or monthly fee, the bookkeeping flips entirely. They’re not your employees so you don’t have a commission expense. Instead, you record the rent they pay as income to your salon. They keep their own service revenue and handle their own taxes. Mixing these two models or treating one like the other creates tax problems for everyone involved.

For product sales commissions, track them separately from service commissions. Some salons pay different rates for retail versus services. Your chart of accounts should distinguish between these if the rates differ so you can see the true cost of each revenue stream.

Tips add another layer. Credit card tips processed through your system need to be tracked and paid out correctly. Cash tips don’t hit your books unless stylists report them for payroll purposes. Either way, your portion of the process should be clean and documented.

The real value in tracking commissions properly goes beyond tax compliance. When you can see gross revenue, commission expense, and product costs by stylist, you know who’s profitable and who isn’t. A stylist generating high revenue but taking a higher commission tier might contribute less to the bottom line than someone with lower sales on a better margin.

Most salon owners who handle their own books struggle with commission tracking because the systems weren’t configured correctly from the start. A bookkeeper near Gentry who understands salon operations can set things up so your reports actually tell you what you need to know about profitability by stylist and service type.