Insights

The Living Wage: Hotel sector

“With the Living Wage increase not taking effect until April next year, firms have a short period to plan for and mitigate the impact of increased costs. There will be large parts of the market where price inelasticity means room rates can rise if they need to, but in areas of the market that are already struggling to break even, the impact of the wage rise may be extensive”

David Soden, Partner in Restructuring Services

It is estimated that the Tourism, Hospitality and Leisure sector has the highest proportion of jobs paying the minimum wage of any sector, at around 30% of the total (Source: Deutsche Bank Market Research). With wages typically representing between a quarter and a third of operating costs in businesses with already low operating margins, the proposed Living Wage is likely to have a significant impact. As with other sectors, employers will face difficult and unpopular decisions – the obvious responses to the wage increase are to reduce or stop bonuses, cut back on other employee benefits or, in the worst case, make redundancies – and this is all the more challenging in an industry where service standards are critical. There is also the inflationary impact on the remaining employee structure to consider. The rising minimum wage will decrease or eradicate the pay gap between those on minimum wage and their supervisors, meaning a full re-evaluation of staff cost structures may be required for larger organisations.

“The NLW will now put significant pressure on companies in the hospitality space and could stunt growth for a few years”
Deutsche Market Research 15 July 2015
 

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