You asked four good questions. Here are the answers, using one of your techs' real weekly checks. Set up our way, her check goes from $1,891.17 to $2,039.98, about $149 more every week. Your payroll records hold up if anyone ever looks, and the salon can claim a tip credit worth about $45 a week on this one tech alone.
Nail techs can be paid 100% commission. No hourly rate needed, and no overtime owed.
A nail salon is a service business. Techs paid mostly by commission are exempt from overtime, as long as two things are true every week: commission divided by real hours worked is more than $10.88 (1.5 times the $7.25 minimum wage), and more than half of her pay is commission. Tips do not count as commission.
Sources: 29 USC 207(i) · US Dept of Labor Fact Sheet #20 · 29 CFR 778.104 (each week stands alone) · 29 CFR 516.16 (records to keep)
Here is what this tech's weekly check shows.
| Line on the stub | Hours | Rate | Amount |
|---|---|---|---|
| Hourly | 40.00 | $25.00 | $1,000.00 |
| Overtime | 24.38 | $37.50 | $914.37 |
| Card tips | $593.67 | ||
| Gross pay | 64.38 | $2,508.04 |
The base is always $1,000, so the overtime hours look like they are set to make the total match her commission, not taken from the time clock. That causes three problems.
Payroll has to show the hours she really worked. If a tech ever complains about pay, this stub says she worked 64 hours that week.
The stub reports $304.79 a week as overtime, which she deducts on her tax return. That only works for overtime the law requires, and commission techs are exempt. Over a year that is about $2,750 of tax the IRS can take back, from a W-2 the salon issued.
Short week, 30 hours: there is no overtime to pad, so the check can't reach her commission. Long slow week, 50 hours: the stub promised $25 an hour plus overtime, so she can claim more than she earned.
We pay commission as commission and card tips as tips, and we record the real clock in and clock out hours. Here is this week's check redone that way.
| Old check | Our wayW-4 set right | |
|---|---|---|
| Hourly 40 hrs × $25 | 1,000.00 | · |
| Overtime 24.38 hrs × $37.50 | 914.37 | · |
| Commission (assumed about 60%) | · | 1,914.37 |
| Card tips | 593.67 | 593.67 |
| Gross pay | 2,508.04 | 2,508.04 |
| Federal income tax | (425.00) | (276.19) |
| Social Security 6.2% | (155.50) | (155.50) |
| Medicare 1.45% | (36.37) | (36.37) |
| Take home | 1,891.17 | 2,039.98 |
| Overtime reported on W-2 | 304.79 | 0.00 |
Weekly check, 2026 IRS withholding tables. "W-4 set right" means Single with her tips on line 4(b), see question 3. If she is married or has kids, even less comes out.
Minimum wage check, every week. $1,914.37 ÷ 64.38 hours = $29.74 an hour, far above the $10.88 floor. If a tech has a slow week and falls short, the salon tops her up for that week.
The W-4 tells payroll how much federal tax to take from each check. It does not change her tax for the year. It only decides when she pays it.
Right now she is set to Single with nothing else. That takes out the most tax, so she ends up with a big refund in April. A big refund is not a bonus. It is her own money the IRS held all year, with no interest. For a tech who just moved from 1099 to W-2, that feels like a pay cut.
That is half right.
Card tips are wages. Payroll must take Social Security, Medicare and federal tax on them. No software setting changes that.
Tips up to $25,000 a year are deducted from federal income tax (new law, 2025 through 2028). Normally she waits until April for it. With W-4 Step 4(b) she gets it in every check.
She hands in a new W-4 and writes the tips she expects this year on line 4(b). This tech is on pace for about $30,900 of tips, so she writes the $25,000 limit.
| This tech, weekly | W-4 today | With Step 4(b)fix |
|---|---|---|
| Gross pay | 2,508.04 | 2,508.04 |
| Federal income tax | (385.28) | (276.19) |
| Social Security and Medicare | (191.87) | (191.87) |
| Take home | 1,930.89 | 2,039.98 |
| April refund, if she earns like this all year | about 5,700 | about 0 |
"W-4 today" is our commission setup with her current Single W-4, per IRS tables. She can hand in a new W-4 any time, and it starts on the next check.
Some techs ask to put part of their commission in the tip line to get a bigger tip deduction. The rule is simple. A tip is money the customer chose to give, in an amount the customer decided.
Tip deduction basics: nail techs are on the IRS list of tipped jobs. Up to $25,000 a year, 2025 through 2028. It phases out above $150,000 of income ($300,000 married filing jointly). Federal income tax only.
You pay weekly today. At our other salons we pay on the 15th and the last day of the month, and I suggest the same here.
If you like it, we give techs two weeks' notice and switch.
I am happy to run one payroll for you so you can see exactly how it works before you decide.