Hotel Effectiveness Blog

Look out, hotel wage increases are on the horizon.

Labor Costs

hotel wage increase

Over the past few months, the campaign to drive up entry level wages has gained a huge amount of momentum – a momentum which will begin trickling down to the hotel industry over the next few months. Hoteliers need to prepare themselves for higher wages taking a big bite into their profit in 2016.

Background

Last year, after failed attempts, worker activists realized they had almost no hope of an increase in the national minimum wage (which has been $7.25 since 2009) passing Congress. They largely gave up on their fight for a national increase and instead, replaced it with a two front war that has been much more successful:

1.   Local and State Government Action – The campaign started small-scale to get local leaders throughout the country to increase local minimum wages. This movement has continued to gain steam as markets like Los Angeles and Seattle are now phasing in $15.00 per hour minimum wages. From this, you can expect more and more cities to pass their own minimum wage increases.

2.   Corporate Action – Walmart, the nation’s largest private employer), made huge news in April by agreeing to phase in a $10.00 minimum wage by 2016 and raised pay for an entry level department manager to $15.00 per hour. Target and TJX (owner of TJ Maxx and Marshalls) followed with a similar commitment within days. Aetna (a healthcare and employee benefits company) announced a $16.00 per hour minimum wage for its workers. Many other large companies have since announced plans for their own wage increases over the next year, and this momentum will continue due to a combination of both altruistic and PR pressure to ‘pay employees fairly.’

Contributing to this momentum is the fact that minimum wage increases are very popular with the general public. In a recent Pew Research poll, 73% of Americans said they supported a $10.10 minimum wage. Last month a national survey found that 63% of Americans support a $15.00 minimum wage.

Keep in mind, it doesn’t stop there; increasing the minimum wage has effects on other wages, as well. As the minimum wage increases and unemployment continues to fall (leaving a shortage of qualified workers), the market wage for entry level employees is driven up. The market wage is the lowest wage that an employer can pay and keep the quality of employees that they need to operate, and thus needs to be raised in order to remain a competitive employer.

The Impact on Hotels

Hotels have mostly flown under the radar of being pressured to increase wages. This is probably due to a combination of the fact that most hotel employees work for private owners or management companies who are harder to target and the fact that companies like Walmart and McDonald’s are bigger targets that are easier to vilify.

Look for this to change in 2016. Hotels will have to start to increase wages at a much faster rate because they simply will not be competitive employers if they don’t.

We recommend the following for hotels:

1.   Budget for higher wages.
Most hotels should expect to increase line level wage rates by an unusually high percentage compared with recent trends.  Hotels whose average wages are on the lower end of the market, should expect the biggest increases. If they don’t, they will eventually fall victim to higher turnover and be in a less competitive position for hiring qualified workers.

2.   Be proactive with increasing pay.
It’s no secret that the most desirable employees have the most opportunities for finding better pay. There will soon be so much news about pay increases that it will be more important than ever to get ahead of the curve and recognize your most valued employees with increases to keep them from looking into other employment elsewhere.

3.   Show your staff the path to success.
Most employees don’t want to jump to a new employer. When you have a good employee, you need to show them that they can build a career with you. Give them a path to earning more money in exchange for becoming more valuable through cross-training to new jobs or higher productivity.

4.   Manage to your labor standards.
We routinely see hotels that either do not provide their front line managers labor standards for every position on property or they do not require their managers to schedule to those standards. This is inefficient management that a hotel management company could get away with when wage rates were largely stagnant; however, these companies will see a big hit to their house profit if they do not adopt sound labor management practices. If you’re not managing your labor standards, be sure to contact us to see how our software makes it easy to do so.

In situations like this, it’s very important to be proactive rather than reactive. Economically and practically, it’s in your best interest to plan for wage increases to keep valued employees than to have to hire and train potentially less qualified employees.

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