June 2012

Steve Sleeper

Beauty Insider| by Myra Irizarry


What Are You Worth?

Why Under-Reporting Income Doesn't Add Up

There is a common misperception among non-beauty professionals that being a cosmetologist is not a serious career.

The majority of people sitting in your chair don't know you went to school, don't realize the ethics and safety standards you abide by as a professional, and likely think you are destined to live in an apartment or in your parent's basement.

Think you have something to prove? You do. The good news is that you have the power to change false perceptions of the industry you love simply by being honest and utilizing best practices.

For starters... How much did you make last year? Let me ask again… How much did you REALLY make last year?

Reporting your tips as part of your annual income is not an option: It is required under federal law. Every working professional - whether licensed contractor, nail technician, spa professional... everyone - is required to report their full income, including tips, as part of their taxable wages.

Not Reporting Undervalues the Profession and the Industry

Many professionals simply don't know that tip reporting is required, and those who do often don't realize the impact that not reporting has on the industry. Not only does under-reporting leave you vulnerable to IRS audits, it affects the national reported salary by the Bureau of Labor Statistics (BLS), the principal federal agency responsible for measuring economic data such as labor market activity, demographics, and average wages by occupation.

So, as a professional, why care about what the BLS reports? The answer is simple: BLS data is used to determine the sustainability of the industry, the amount of federal funding available to students in cosmetology school (a cost that can sky-rocket to *$20,000 depending on state requirements) and is a gauge used to measure the general worth of your career and the industry.

Are you worth more than $10.82 an hour? That's what the BLS reported as the median hourly wage of "barbers, hairdressers, and cosmetologists" in 2010. That's $22,500 a year – only about $7,500 more than the national poverty line for a family of two.

Honest Reporting Leads to Personal and Professional Success

But the fact is, when you factor in tips, most licensed professionals make much more than this. The immediate benefits of reporting your salary honestly far outweigh having a few extra unreported dollars in your pocket at the end of the day.

Thinking of getting a new car or a house one day? Lenders look at your salary to determine the amount you are eligible for to make these types of large purchases. But, that salary has to be documented and verifiable.

Stefanie Gilardo, a 29-year-old licensed stylist in Massachusetts, learned that the hard way when she went to purchase her first home at only 24 years old. "I found out during the process of buying my condo that I made enough money, but unless it's on paper it doesn't count. It had to be verifiable. I had to use a co-signer until I was able to refinance. During that time, I started claiming my tips."

She continued that "There are a lot of people in the beauty industry who do not claim tips… when they decide to buy a piece of property or get some sort of loan, they will run into trouble even though they may make enough money. Unless it shows up on paper, it is worth nothing."

Beyond getting a loan for your first home, think about where you'll be in 30 years. The best thing to do for your future is to start planning now. Paying into Social Security is just one part of your savings plan for retirement. And, the more you pay in, the more you get out.

When you under-report your income, you are slowly and steadily chipping away at your social security retirement benefits. For example, a **30-year-old stylist making $40,000 a year who under-reports their income by $300 every month will receive nearly $250 (accounting for inflation) less per month for the rest of their life once they reach retirement.

If you are already reporting your tips, I hope you will join the effort to elevate the industry by educating your fellow beauty professionals on the importance of honesty in wage reporting. If you're not reporting your tips, I hope reading this has helped you understand how much under-reporting hurts you and the industry. Be the person who stands up for the integrity of the industry – today and in the future.

And if you're ever audited, don't say we didn't warn you.

Myra Irizarry is the Director of Government Affairs for the Professional Beauty Association (PBA), the nation's largest organization of beauty professionals. PBA Government Affairs works at both the state and federal levels to promote legislative efforts that support and protect the beauty industry. Learn more at probeauty.org/advocacy.

*Source: www.beautyschoolsdirectory.com **Based on the benefit calculator on the Social Security Administration web site: www.socialsecurity.gov.