The Hidden Drivers of Hotel Labor Costs

Hotel wage rates are rising at an alarming pace. Huge spikes in hourly wages are common in major cities, and across North America, wages are growing much more than revenues.  Low unemployment and a shrinking immigrant workforce combined with the highest demand in modern history make high compensation inevitable. While it is critical for hotel owners and managers to stay on top of competitive wage rates, there are other, less known drivers of rising total labor costs that are far more controllable.

OVER-SCHEDULING

Over-scheduling is the most consistent driver of surplus labor costs and represents the biggest opportunity to reduce expenses without sacrificing quality.  In fact, it is the drive for quality which leads to habitual over-scheduling. No housekeeping manager has ever been reprimanded for having too many rooms cleaned too quickly, or for having more rooms available for check-in than what is required by daily arrivals.  On the other hand, if a guest is forced to wait for hours after the official check-in time for his room to be ready, the conversations with that manager can get very ugly, very quickly.  The safe bet for such managers is to pad the schedule. Most line managers do this by adding 20-25% more labor hours to their schedule than are actually needed for “variable” positions – driven by business volume- vs. “fixed” costs -driven by requirements for staying open.  

The answer?  Use labor standards combined with your operational forecast to create the perfect labor plan for each day of each week.  A labor standard is a staffing rule that connects a particular business driver, like guest arrivals or departures, with a particular position.  For example, you might know that it takes your front desk staff 4 minutes to check-in a guest and 2 minutes to check them out. If you are expecting 60 arrivals and 40 departures on a given day, you know that you need at least 5.3 hours of front desk time for this task alone, which is then divided across the times of day that you expect these activities to take place.  Add the other stuff that a front desk person takes care of and you will produce a full labor plan for the day for this position, creating a perfect scheduling template.

“JUNK” OVERTIME

One of our customers came up with the term, “junk overtime.”  There are two kinds of overtime:

• “Good Overtime”  = the extra hours that you need to staff because of a spike in demand or activity.  For example, if a busload of stranded passengers show up at your hotel, you are going to need extra help cleaning the rooms and serving breakfast the next day.  This is welcomed business, in which the extra expense is paired with a nice piece of extra revenues.
• “Junk Overtime”  = the extra hours that come from sloppy timeclock activity or clever staffers.  Some team members will regularly clock in 5 minutes early or shave time from scheduled breaks.  These added minutes add up, and if lots of people do this every day, the costs can be huge.

A good labor planning process, like the one described above, will help you figure out exactly what additional hours you need for the “Good Overtime”  scenario above, avoiding any excess expense.  

Real-time monitoring of your timeclock activity plus your future schedules will help you eliminate “Junk Overtime”  very quickly.  One of our customers claims to have reduced total overtime from 150-180 hours per week to less than 3 hours by using the built-in tools of our system to manage this critical expense driver.  

OVERUSE OF CONTRACT LABOR

With so few qualified workers available for full-time roles, nearly every hotel has to use contract labor today.  This is very expensive but unavoidable. Even so, most hotels tend to use a lot more contract labor hours than they actually need.  The reasons for this excess include:

• Separate systems for contract labor scheduling – Most contract labor companies prefer to use their own scheduling system rather than the tool used by the hotel.  In many cases, the provider will even manage the schedule for the hotel based upon their own labor schedules and staffing guidelines. A separate system is much harder to control, and the opportunities for overscheduling are huge.
• Monthly billing – Many hotels don’t know how much they are spending on contract labor until the end of each billing period – usually monthly.  While there is usually a process to handle disputes, it is very hard to challenge the hours worked after they have already been delivered.
• Contractual minimums – Some vendors require a minimum number of hours or shifts per week in order to secure their services.  In order to meet these minimums in slow weeks, hotels may have to reduce the hours of less expensive in-house staff, trading the lowest cost labor for the highest cost labor without any real benefit.  

Contract labor should be scheduled according to the hotel’s labor plan just like any other labor.  A contractor can use its own systems if they need to do so, but the master schedule and real-time tracking must always be part of the hotel’s own system and process. Labor standards are very helpful in negotiations with contract labor firms, because a vendor is less likely to complain about staffing guidelines that the hotel follows with its own teams.  

Hotel Effectiveness® was named the Top Labor Management solution by Hotel Tech Report in part because our service addresses each of these opportunities.  The full control and visibility provided by our system eliminates overscheduling, excessive overtime, and overuse of contract labor. This has the extra benefit of freeing up time for our clients, who mostly spend it on looking for new hires or selling to new accounts!