The $45,000 mistake that could happen to your beauty business
Picture this:
You’ve built a thriving lash bar. Your “contractor” lash tech is fully booked, clients rave about her, and she’s been working in your salon for two years. One day, you get a letter from Fair Work. She’s claiming she was actually an employee, and you owe her unpaid annual leave, super, and penalty rates.
You laugh it off, until the lawyer’s letter arrives. By the time the claim is resolved, you’ve paid:
- $24,000 in back pay and super
- $8,000 in penalties
- $13,000 in legal fees
$45,000 gone… all because you didn’t classify her correctly.
And here’s the kicker, this isn’t a rare “worst case” story. It happens every week in the beauty industry.
What the law says vs. What you think it says
The beauty industry thrives on flexibility. Rent-a-chair, commission splits, “just a contractor for now”, we hear it all the time. But in Australia, you don’t get to pick the classification that’s most convenient. The law looks at the reality of the arrangement, not the title on the paperwork.
Employee
An employee works in your business, not alongside it. You control:
- The hours they work
- The clients they see
- The services they perform
- The tools and products they use
- You also take responsibility for:
- Paying wages (including penalty rates for weekends/late nights)
- Superannuation contributions
- PAYG tax withholding
- Paid leave entitlements
- A safe working environment
Independent Contractor
A contractor is running their own business. They:
- Control their hours and client bookings
- Provide their own tools and products (or pay to use yours)
- Invoice you for their work
- Pay their own tax and super
- Have their own insurance
- Can work for multiple businesses
The legal test isn’t “what do we call them?”, it’s “who controls the work, and how is it done?”
The Grey Zone: Where beauty businesses get burnt
Here’s the catch: In the beauty industry, we love the rent-a-chair or room rental model. But if you say someone is a contractor, yet treat them like an employee, the law doesn’t care what you call them.
Courts and Fair Work look at the reality of the working arrangement, not the title on the agreement.
Red flags that turn your “contractor” into an “employee” in the eyes of the law:
- You dictate the client bookings and schedule
- They can’t work for other salons without permission
- You set strict dress codes and enforce salon policies like an employee handbook
- They use only your products and tools
- You take all payments from clients and “pay them out” later
If these sound familiar, you’re not running a true contractor arrangement, you’re likely employing them (and breaching the law if you haven’t followed employee obligations).
The myths that cost beauty owners thousands
Let’s bust some common salon myths:
❌ Myth 1: “If they have an ABN, they’re a contractor.”
Nope. An ABN doesn’t override the actual working relationship.
❌ Myth 2: “If they pay their own tax, it’s fine.”
Not if you’re controlling how they work, you can still be liable for unpaid entitlements.
❌ Myth 3: “Everyone in the industry does it this way.”
Everyone in the industry also gets audited and fined. Don’t follow bad habits.
❌ Myth 4: “If they sign a contractor agreement, we’re safe.”
Not if the terms don’t match reality. A “contractor” who works like an employee is still an employee in the eyes of the law.
The Cost of Getting It Wrong
Misclassification can trigger:
- Back pay for wages, super, annual leave, and penalty rates (sometimes years worth)
- Tax liabilities for unpaid PAYG and super
- Fines from Fair Work for non-compliance
- Workers’ compensation claims if they’re injured and not covered under your policy
And here’s the kicker, these can stack up per worker. One mistake multiplied across multiple staff can sink a business.
Case Study: Sarah the Lash Tech
Scenario A – Employee:
- Works 30 hours a week in your salon
- You set her schedule and approve time off
- She uses your tools and products
-
You take client payments and pay her wages weekly
→ She’s an employee
Scenario B – Contractor:
- Rents space from you 3 days a week for a fixed fee
- Runs her own booking system and takes her own payments
- Supplies her own lash products
-
Works for another salon on other days
→ She’s a contractor
How to Decide the Right Classification
When deciding between employee or contractor, ask:
- Control: Who decides the hours, clients, and work performed?
- Tools & Products: Who supplies them?
- Financial Risk: Who carries the risk of a slow day, do they still get paid?
- Business Presence: Do they market themselves as their own business?
- Exclusivity: Can they work elsewhere freely?
If the answer to most is “me/the salon”, they’re likely an employee.
How to Protect Yourself – Step by Step
1. Map the Reality of the Role
Write down exactly how this person works day-to-day. Be brutally honest.
2. Compare to the Legal Tests
Use the ATO and Fair Work “employee vs contractor” guidelines as a checklist.
3. Decide the Correct Classification
If in doubt, err on the side of employee, the penalties for getting it wrong are harsher than the cost of doing it right.
4. Put the Right Agreement in Place
For employees, an employment agreement that matches the Hair & Beauty Industry Award.
For contractors, an independent contractor agreement tailored for the beauty industry.
5. Review Regularly
Roles evolve. Someone who started as a contractor may drift into employee territory over time.
Structuring a True Contractor Arrangement
If you do want contractors:
- Have a written Independent Contractor Agreement tailored for the beauty industry
- Ensure they invoice you directly, not the other way around
- Let them set their own hours within reasonable business limits
- Allow them to work elsewhere
- Require them to carry their own public liability and professional indemnity insurance
- Make them responsible for their own products and tools (or clearly charge them for using yours)
The Rent-a-Chair Model – The right way
This can be a great way to reduce wage overheads, but only if:
- You’re leasing space, not hiring services
- They pay you a fixed rental fee, not a commission split that mimics wages
- They take payments directly from clients and pay you separately
- They run their own business branding, even if inside your salon
- You don’t control their bookings or prices
Compliance first, headaches never
Whether you’re expanding your team or restructuring, classify your staff correctly from day one. A little legal clarity now will save you a lot of pain (and cash) later.
The Lounge Membership: Your Classification Confidence Tool
Figuring out if someone is an employee or an independent contractor in the beauty industry isn’t just a tick-box exercise, it’s a legal minefield.
One wrong call and you could be facing:
- Years of back pay for wages and super
- Penalties from the Fair Work Ombudsman
- Unpaid leave entitlements
- Public naming and shaming in the media
That’s where The Lounge Membership gives you an unfair advantage.
Unlimited Legal Questions, Without the Lawyer Price Tag
You can ask as many “quick” or “complex” questions as you want no meter running, no invoice shock.
Example:
“Can I call my new stylist a contractor if I set their hours and provide all the tools?”
Our team will break down exactly what the law says, explain why, and guide you to structure the arrangement so it’s compliant.
40% Off All Templates When You Pay Upfront
From beauty-specific employment agreements to rent-a-chair contracts, you can access lawyer-drafted, industry-specific templates at nearly half price.
These templates are built to reflect the real-world realities of salons, lash bars, and skin clinics so you don’t end up using a generic contract that’s legally useless.
Our AI Bots, your Lawyer-Trained Legal Sidekicks
These are not some generic chatbots. We’ve trained our AI Bot with real legal knowledge specifically for beauty businesses. It’s like having a salon-specialist employment lawyer on speed dial, without the hourly rate.
Here’s what makes it different:
- Industry-specific: Tailored to the realities of hair salons, lash businesses, and skin clinics.
- Legal accuracy: Built with lawyer oversight to ensure answers align with Australian law and Fair Work’s contractor vs employee tests.
- Fast & available 24/7: Get classification answers instantly no waiting days for an appointment.
- Guided responses: The bot won’t just say “yes” or “no” it explains why, flags risks, and suggests next steps.
Real Scenarios Where the AI Bot Saves You Time & Money
1. Avoiding a Misclassification Disaster:
You’re about to sign a “contractor” agreement with a stylist who will work regular hours in your salon.
The bot walks you through the Fair Work tests, showing that this is actually an employment relationship, saving you from years of back pay and fines.
2. Structuring a Compliant Rent-a-Chair Setup:
You want to rent out a chair but keep some control over pricing and branding.
The bot tells you exactly what you can and can’t require without crossing into “employee” territory, and how to document it properly.
3. Adding a Contractor for a One-Off Event:
You’re hiring a makeup artist for a bridal party. The bot confirms the arrangement can be genuine contractor work and outlines the terms you need in writing to protect yourself.
Why This Beats Googling
Google will happily give you contractor vs employee advice from overseas or other industries, none of which apply to the Australian beauty sector. Our AI Bot gives beauty-specific, Australian law-aligned answers instantly, with the option to follow up directly with our legal team if you want confirmation.
👉 Join The Lounge today and make classification and every other employment law decision in your salon a zero-stress, always-right, always-compliant part of your business.
***Disclaimer. Please read!!***
This article is for general information purposes only and should be used solely as general guidance. It does not and is not intended to represent legal advice or other professional advice.
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