The reality of hourly rates of pay in the hospitality industry are laid bare today by Fourth, the leading global software partner to the hospitality and leisure industries.
As UK businesses prepare for the introduction of Chancellor George Osborne’s national living wage next month (in April 2016), the impact of wage rates on hospitality businesses has become a key point of discussion and debate.
Through data collated by Fourth Analytics, including the hourly rates for thousands of workers across hundreds of hospitality and leisure businesses, Fourth can reveal the current wage market and how this might be affected by the new living wage.
The company, which works with a host of restaurant, pub, bar and hotel groups – such as Casual Dining Group, Fairmont, Fuller’s, Hakkasan, IHG, Marriott, Pizza Express, Starwood, Stonegate, TGI Friday’s, Travelodge and Wagamama – focused on hourly wage rates prior to chancellor George Osborne’s October 2015 announcement of the introduction of a national living wage, which will see over 25s paid a minimum of £7.20 per hour.
Using data collected between October 2014 and September 2015, Fourth has identified an increasing growth in hourly wage rates for staff in the hospitality industry, suggesting that the introduction of the £7.20 national living wage rate may not cost the industry as much as originally predicted.
Analysis of hourly rates from thousands of hospitality venues shows that over 21s currently earn £7.04 – as at October 2015 – just 16p shy of the new living wage. This number had risen from £6.96 a year earlier.
This blended hourly rate compares to a current minimum wage that rose immediately after these numbers were collated – from £6.50 to £6.70 in October 2015 – suggesting hospitality firms are paying an 8.3% premium to the minimum wage.
These figures suggest that, in reality, hospitality businesses have already moved a long way towards providing higher levels of pay to hourly-paid staff – on the face of it, reducing the impact the new living wage will have when it is introduced in April.
Commenting on the figures, Mike Shipley, Analytics & Insight Solutions Director at Fourth, said: “Our insight suggests the perceived gap between current pay rates and the new living wage is nowhere near as big as some in the industry may think.
“However, it is clear that the hospitality industry is already paying a premium, presumably to compete for the best people, and it’s a question of whether operators maintain that premium. If so, we could see hourly rates pushing the £8 mark and beyond, which will also put upward pressure on other more senior pay grades, potentially triggering wage inflation across the payroll at hospitality organisations.
“It is also important to remember that further annual ratchets are scheduled, such that the living wage will rise to £9 by 2020, meaning a salary of almost £22,000 for a 25-year-old working a 48-hour week. Businesses need to continue to work extremely hard to find ways to absorb these jumps.”
Productivity the key?
The analysis also suggests the industry is delivering some significant productivity gains, with sales generated per labour hour increasing from £32.33 to £33.11, in the 12 months to September 2015 – a gain of 2.4%, which follows a similar rise the year before.
Added Shipley: “The new living wage will inevitably prompt companies to look harder at productivity and efficiency. We are currently working with many different hospitality and leisure companies, looking at these issues and using analysis to drive revenue per labour hour and to identify and eradicate wasted labour hours. It is a complex challenge but one that can deliver substantial productivity gains, and that is surely the key to weathering what will surely be a new era of labour inflation for hospitality.”
What Fourth’s analysis reveals
• Average hourly rate for over-21s as at October 2015 was £7.04
• This was up from £6.96 12 months’ early – as at October 2014
• In turn this had risen from £6.73 the year before
• The rate in London already exceeds the living wage – £7.23 as at October 2015 (inside M25)
• Productivity in hospitality is up: £33.11 of revenue per labour hour
• Revenue per labour hour was £32.33 as at October 2014
• Hotels are paying the most, with an hourly average rate of £7.58