Hospitality industry faces accelerated wage inflation pressures

As the general election day dawns, Fourth, the leading global software provider for the leisure and hospitality industries, has revealed that the hourly pay of workers in the UK hospitality industry continues to outstrip the National Living Wage (NLW), with the hourly rate currently sitting at £8.12 – 62p higher than the new NLW threshold for over 25’s, introduced in April 2017.

The headline statistic represents all age cohorts, when U25’s are stripped out the average hourly wage rises to £8.26. This number has been mined from Fourth Analytics data on the hourly pay of thousands of hospitality workers and is blended across the hotel, restaurant, QSR and pub sectors.

The extent of wage inflation over the next five years will be heavily determined by how votes are cast tomorrow given the differing policies of the two main parties. In its manifesto, the Conservative party has pledged to raise the NLW for workers aged over 25 to 60% of median earnings; while Labour has pledged to raise the NMW to £10 an hour for all workers aged 18 and over by 2020.

Figures from the Institute of Fiscal Studies (IFS) paint a bleak picture for all UK employers, stipulating that the Conservatives’ policy would affect 2.8 million workers and raise the cost of employing them by 4% on average, costing employers £1bn per annum. On the other hand, Labour’s policy would affect 7.1 million workers and raise the cost of employing them by almost 15% or £14bn per annum.

Commenting on the figures, Mike Shipley, Analytics & Insight Solutions Director at Fourth, said, “It is clear that real wages in the hospitality industry continue to outstrip the increasing NLW, as operators compete to retain the best employees in the industry.

“Regardless of the result in today’s election, it’s evidently clear the hospitality industry will continue to face increasing wage cost pressures, the only question is how great they will be.

'Considering we’re currently paying on average wages 8.5% higher than the NLW, the average hourly rate could reach £10.85 or more by 2020.

'Crucially, as well as the differences in headline wage rates, the differing proposed treatment of minimum wage rates for those aged between 18-25 by the two main parties will also materially affect the overall cost burden to the industry.”

“In the face of this, and the impending possibility of a hard Brexit which would shrink the talent pool further, operators will either need to improve efficiency or reduce employee numbers to balance the books.

“To combat this era of aggressive labour inflation without cutting staff, many of our clients are engaged in productivity programmes and initiatives, such as smarter rota scheduling to improve both sales and service levels, as well as driving the amount of revenue taken per worker / per labour hour.”

Regional pay gap
The regional pay gap, which had reduced to 10p in January 2017, has now risen slightly to 13p, with areas inside the M25 paid £8.19 on average and areas outside paid £8.06.

Shipley said, “This suggests that the supply of labour in London is starting to decrease, and employers are having to pay a premium in order to compete for the best staff. With its larger reliance on non-UK workers, supply looks set to drop further following Brexit, which could further exacerbate wage rate inflation.

'This is particularly important in context with the higher costs of living in the Capital, as well as further competition from the increasing number of retailers now paying the Living Wage Foundation’s voluntary ‘London Living Wage’ of £9.75.”

Gender pay gap reverts
The gender pay gap, which favoured women by 2p in December 2016, has now reverted in favour of men (£8.18), who are paid on average 12p more than females (£8.06).

Shipley added, “These figures represent the hourly contractual pay of employees and don’t take into consideration non-contractual payments such as tips. Front of house (FOH) roles are proportionately more female orientated – 59% of FOH staff in the UK hospitality industry are female – which should be a serious consideration for ACAS when they collate gender pay gap statistics over the coming year.”

Others statistics
· U21s in the hospitality industry are currently paid on average £7.17 – £1.57 more than the NMW for their age group.

· The wage rate for U21’s has been consistently tracking the increases to the wage rate for O25’s since the introduction of the NLW rather than the lower U21 minimum wage rate, indicating that wage rate parity is becoming increasingly common.

· Including head office staff, the average salary of men in the hospitality industry is £36.6k; the average salary of women is £30.2k.

· Sales achieved per worker per labour hour has risen by 10% from £31.94 in 2014 to £35.10 in May 2017.

· In that time labour costs as a percentage of sales have risen from 27.3% to 28.1%.