that service charge is paid out , and who it ’ s paid out to . The law is very specific when it comes to staff charge in California , and I ’ ve got a feeling this may start spreading across to other states .
Pulse : It can all be so confusing . It ’ s my understanding that in some states if you call it a service or staff charge , you can split it , but if it ’ s a tip or gratuity you can ’ t split that out , even to other staff members . All of the tip has to go to the very person who provided the service . I guess this all reinforces the need to check with your individual state and local regulations as you ’ re setting up even the language you use on your collateral materials . Speaking of legal issues , what are you finding as you ’ ve talked to your legal team about taxing tips or portions of service charges ? SH : It is our policy to tax tips , even if they are cash , because it goes into their wages , and it ’ s a big part of their compensation . We have to comply with the laws around this .
Pulse : You said you prefer a base plus a commission versus a flat rate . Why is that ? SH : I ’ m a big fan of dynamic pricing and we are seeing incredible booking results from it . Commissions can incentivize your providers who don ’ t want to work weekends or holidays — when you have high demand and you charge a higher rate . Now they will want to work Saturday or a holiday , because they ’ re probably going to earn 20 percent more money on that day .
Pulse : What ’ s your best practice on incentivizing product sales ? SH : I recommend a sliding scale , based on set goals so when they reach a certain threshold , the incentive will go up until they reach the highest threshold . We have properties that will incentivize the front desk individually , but I ’ m not a huge fan of that . I recommend that you pool it . So , say your budget is $ 100,000 in retail that month : If you reach 90 percent of that , there ’ s a zero point five percent payout , and then higher payouts when you reach 100 percent or 120 percent , etc . I try to have them work together with the providers to close the sale .
I also put in place an enhancement program . Our providers usually make money on enhancements , but I put a program in place that paid incentives to the front desk agents . I put a whole structure and a lot of education , a training , manual , videos and everything around it . I ’ ll probably make about $ 12 million from them in my portfolio of properties . And it has an 85 percent flow through , which is amazing .
Pulse : Do you have any advice for spa owners looking to change their compensation structures on how to sell it to the team ? SH : I ’ ve seen some our own properties that have converted the wage scale , and it ’ s done great , and I ’ ve seen some that haven ’ t gone great . For the successful ones , the consistent message is inclusion and transparency . You need to sit
Commission Tip / Service Charge
Base
Incentives
DECEMBER 2024 / JANUARY 2025 n PULSE 41