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The National Living Wage: Is hospitality coping with the consequences?

22 April 2016 by
The National Living Wage: Is hospitality coping with the consequences?

In the second of The Caterer's roundtable discussions on the National Living Wage, held in association with Diversey, eight operators headed to Upstairs at Trinity in Clapham, London, to talk preparation, consequences and the road forward. Tom Vaughan reports

The panel

Adam Byatt, restaurateur, Trinity and Bistro Union, London

James Clarke, general manager, Hilton London Bankside

Erik Kervaon, general manager, the Bingham, London

Tony Mullen, group HR manager for London, Apex Hotels

Rob Payne, chief executive, Best Western

Mark Pearce, HR consultant, My HR Director

Tim Robins, national account sales director, Diversey

Precious Sweta, associate director, the Wesley, London

Aideen Wheelehan, HR manager, Lancaster London

Were businesses ready when the National Living Wage (NLW) came into effect in April? Or was it pushed through too quickly?

Aideen Wheelehan (AW):

James Clarke (JC): I work at Hilton, but it's a franchise - I work for a company called Splendid Hospitality, which is a small group of 20-25 hotels. As a company we always put people first; that's its mantra. If you are going to put people first you have to pay them fairly, especially in London. Staff turnover can be damaging to a business and cost you in the long run.

Mark Pearce (MP): My take on this is that there has been enough time for organisations and businesses to implement the increase and to look at the knock-on consequences, for example, what might happen when your waiters are paid more like your supervisors.

Rob Payne (RP): I agree that a fair wage for everyone is what we all support. I disagree that we have had enough time. We were told about it in July. I work on behalf of 250 small, family-run businesses. A survey across our businesses has shown that one in two salaries is going to increase because of this and it is the number one concern among our members. Some of them planned pay rises last year and now they have this on top.

As an industry we have been behind the curve, but I think we need more consultation and we need a road map, because it isn't just this increase but what will happen over the next few years to 2020. My worry is for those small and medium-sized businesses that aren't in a group or membership organisation like ours.

Tim Robins (TR): We're constantly working with our hospitality customers to help them improve the productivity and performance across their housekeeping operations. We've also studied how our products are used across the industry to prove that cleaning with the right tools can significantly decrease the time it takes to clean a room. By increasing efficiency and enhancing the results of their cleaning processes, they can get more done with the same resources, helping to absorb some of the effects of any rises in costs.

Where do you find the money?

Erik Kervaon (EK): There is no doubt that the NLW is affecting profit. You want to put the price up? Good luck. I can't do that. My worry is that as an industry we were not consulted - we just woke up in July and saw that it was happening.

RP: No-one wants to see a price rise, and no-one wants to see a reduction in quality, but those are the levers that our hotels are looking towards. We did a survey of our members and 80% of them said they wanted to put the price up. But in a competitive market they are not going to be able to put the price up or skimp on quality. So we have to look to other areas to help our members and offset these costs.

AW: I think we have the opportunity now to look at new ways of engaging people - because we are going to have to do so much more - and to look at productivity to find new ways to make up those costs. It's an opportunity to look at your business, tighten things up and ask: "Is your business lean?"

Tony Mullen (TM): It's an opportunity to look at processes. In our business we do just that and a lot of the time you find there are significant improvements and efficiencies in tasks that are done every day. It's often overlooked. People look at what they pay per hour but should be looking at what they are getting per hour.

RP: Now is the time to turn over every single rock to find ways to save costs or drive yield or find new revenue streams. The NLW is here to stay. We have to look at costs. Whether it's joining purchasing organisations or turning to other industries and looking to see how they can help us. It's not about stripping people out.

JC: We always look at industry leading companies and ask, "What do they do to look after their employees and what examples can we bring back to look after our own teams?". That gives me a competitive edge to keep staff.

TR: Introducing innovations and improved processes to make housekeeping more efficient helps organisations to be more productive and reduce overall costs. In simple terms, hotels can do more with the same money if they manage their cleaning processes more effectively. For example, our microfibre cloths and mops enable housekeepers to clean hard surfaces quickly, with or without chemicals.

Hospitality is traditionally made up of low-margin businesses. The NLW must have changed your forecasts?

RP: I've spoken to a lot our members about this. There is an example of a 40-bed property. They don't want to put their prices up because they are in a competitive market. They don't want to reduce quality because it is known for its quality. What do they do? They're not worried about the wage increase next week - what they are worried about is the future and they are considering selling the property. I think it will drive decisions like that for a lot of smaller businesses - can they sustain their operation?

Adam Byatt (AB): When you include auto-enrolment pension, that is another 5%. It's not now that worries me, it's in five years' time that worries me. Trying to fathom wages in a small independent restaurant - it's a mine-field. There is a point at which my business can't operate over a proportion of labour. It is a hospitality business and it lives and dies by hospitality. And that is an expensive thing to provide for people.

The NLW is for over-25s only. Will it affect your recruitment strategies?

JC: I think it would be totally unfair [to only give it to over 25s]. We intend to give it to everyone.

MP: You could potentially find yourself accused of age discrimination. Most of the businesses I know plan to pay everyone the same if they are doing the same job.

AB: I think the NLW will fix one thing - there aren't as many incoming people into the industry, especially younger people. And I think, whatever people say, businesses will be more attracted to taking university leavers because they are cheaper and that might fix the problem of a lack of incoming young people.

How will the NLW affect service charge?

AB: I don't understand how service charge and tronc will come in to this. We pay people very well - well above the industry standard - but a portion of that is service charge. When I up the minimum and put the service on top they will be paid incredibly well and that will immediately affect my bottom line. This whole service charge thing: the government doesn't really understand it; the industry doesn't understand it; the public certainly doesn't understand it. It's a grey area.

Will perceptions change about hospitality as an employer?

AW: If it is applied to all industries then not really. We are going to change perceptions by doing exciting things.

EK: The difference between our industry and retailers, for example, is the service charge. If that is done properly and given back to staff it can make a big difference. If employees get NLW and then £300 service a month it makes a big difference.

MP: This industry is one of the few that gives absolutely anybody the chance to go to the top.

JC: It's one of the best industries in the world. I've come from humble beginnings and had the opportunity to travel the world and meet amazing people. You'll never go without a place to stay, you'll never be hungry, you'll always have a glass of wine. It's about people and if you are passionate about that it is the industry to be in. I think we have communicated that much better in the last 10 years.

AB: All we try to do is make sure all our staff feel really well paid - that they buy into what we are doing, they feel well rewarded for the job they are doing, are fairly treated and are part of something that is relevant and dynamic.

Do we need better consultation from the government?

RP: Yes. Now's the time to sit back down and work these things through with the government and work out a road map for how the NLW will increase over the next five years. There are lots of questions that remain unanswered. They can't just ignore the problems the industry is facing. What about VAT on tourism? We are one of only three countries in Europe that doesn't have a differential lower VAT. It is not a level playing field across Europe. David Cameron chose not to have his own holiday in Britain, even though he was encouraging people to head north. He chose to go to Tenerife for a low-VAT holiday. Now is the time to have those conversations. We are almost double the rest of Europe in VAT. It can't be right. It is because of a lack of consultation.

AB: I'd say that over half the people who eat in our restaurant have no idea that 20% of that bill is nothing to do with the restaurant - it is a transaction between them and the government.

JC: If you reduced the VAT it would put more money in our guest pocket to eat and drink and stay in our beautiful hotels across the UK.

So everyone is in favour of the NLW, but it is those other business pressures that need to be addressed?

All: Yes.

Can technology bridge the productivity gap?

JC: In my organisation we are always looking at the future of the industry - millennials. We see the disappearing front desk, with the ability to check in online and get into your room with your iPhone. You've got to be thinking in new ways these days.

RP: I don't think it's a 'one size fits all' situation. We created an electronic concierge service but that's not necessarily what baby boomers want. Yes, technology will come in to it but we are predominantly a people business. I don't think you can strip out people completely.

TR: Technology should improve productivity. Our Taski Intellibot robotic floorcare machines are ideal for cleaning areas in hotels such as banqueting and conference spaces. They work on their own, to clean an area while housekeepers complete other duties, making better use of their time. Our Smart View mobile communication platform also supports the service we give.

Five National Living Wage talking points

  • On 1 April 2016 the National Living Wage (NLW) came into effect - over-25s now must earn at least £7.20 an hour, a sum that will increase each year towards the target of 60% of UK median pay by 2020, a figure expected to be about £9.35 an hour. This implies compound annual increases of 7%.
  • A 2015 survey by the Resolution Foundation found that the mandatory wage increase will have their greatest impact in retail (79%) and hospitality (77%) sectors, with over three-quarters of employers saying their wage bill will be affected. It estimated that the hospitality industry will have an extra £1b+ a year bill by 2020.
  • Currently, both cash tips handed directly to workers, and payments made by the employer or troncmaster that represents service charges, tips, gratuities or cover charges, do not form part of a worker's remuneration for NLW. There is nothing to suggest that the Government intends to change the current position and to allow tips to be taken into account when calculating.
  • While the NLW only applies to over 25s, some companies such as Welcome Break have said the NLW will be the minimum starting rate for all of the company's 5,000 employees across its 27 sites - including those under the age of 25.
  • A November 2015 survey by the Department for Business, Innovation and Skills (BIS) carried out in November 2015 found that the vast majority of employers are in support of the new rates: 93% of all bosses agreed the National Living Wage was a good idea, 88% said it would make staff more productive and 82% believed customers were likely to return if the business paid the right rates of pay.

Diversey Care - supporting hotels and hospitality

Diversey Care has a heritage in the cleaning industry that can be traced back over 100 years. Today, as part of the Sealed Air Corporation, its comprehensive range of cleaning products, machines, training and consulting services means the company is able to offer complete cleaning and hygiene solutions for the hotel and hospitality sector. These are all designed to help hotels and hospitality venues embed food safety and security, facility hygiene and brand protection into their operations. Diversey Care has built its market-leading position by developing products that deliver the best possible performance, value and sustainability, and by introducing innovations that drive business improvement.

*Are you looking for a new role? See all the current hospitality vacancies available with The CatererFONT >>*

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Jacobs Media Group is honoured to be the recipient of the 2020 Queen's Award for Enterprise.

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