Viewpoint: Employers must absorb extra wage costs

03 December 2015
Viewpoint: Employers must absorb extra wage costs

The hospitality industry must rise to the challenge of the new wage levels, says Peter Ducker, chief executive of the Institute of Hospitality

If we consider that it was legal to use tips and service charges to top up the minimum wage as recently as 2009, then things have clearly changed a lot since then. Tipping has been a recurrent theme for broadsheet journalists when politicians go on holiday. As the negative publicity continued this summer, some well-known restaurant chains decided to change their policies and no longer withhold an administration fee from tips and service charges. These articles struck a chord because of their strong consumer rights focus.

Another recent article in The Observer was specifically about efforts to unionise housekeepers and allegations of their poor treatment. The article contrasted working conditions in London and New York, where widespread union membership means housekeepers earn £16 an hour with health cover, holidays, controlled hours and access to training and education. The article says that this New York pay deal has reduced turnover, training and recruitment costs, stress and days lost to ill-health.

The impact of national minimum wage rises is greater for our sector than others. Payroll is the largest cost for UK hospitality businesses (23% of turnover for London hotels, 27% for England, 33% for Scotland, and around 40% for restaurants).

The voluntary Living Wage movement (£7.85 per hour or £9.15 inside London) has not been widely embraced by large employers except contract caterers, whose business model allows them to offer it to their clients.

Large hotels and restaurant groups are absent from the Living Wage Foundation's list of 1,776 companies (InterContinental Hotels Group made a tentative pledge to phase in the London Living Wage at eight of its London hotels over the five years up to 2017). However, a good many small hospitality businesses, such as cafés, pubs and bars do choose to pay the Living Wage: Caffe Sicilia in Cambridge, Ridley Road Market Bar in Dalston, Drapers Bar and Kitchen in Coventry, school meals company Food for Thought, the Golden Ball Co-operative pub in York, Haytor hotel in Torquay, the Ivy House community pub in Nunhead, Kuni's Coffee & Comics in Daventry, Salut Wines wine bar in Manchester… the list goes on.

The owners of Salut in Manchester say there are positive business benefits to paying the Living Wage: training isn't wasted because employees tend to stay, and customers are pleased to see the same faces.

George Osborne's announcement of his own ‘National Living Wage' has caused some confusion, but it is calculated differently and is not as high as the rates set by the Living Wage Foundation.

Nevertheless, the size of the new increase in the legal minimum wage next April (6.9% from £6.70 an hour to £7.20) has caused a great deal of consternation. The Office for Budget Responsibility estimates that it will lead to 60,000 job losses and other forecasters believe these losses will all occur outside London. Whitbread has said it will have to increase prices and cut jobs to cope, and JD Wetherspoon predicts closures.

Only time will tell the real consequences of the Chancellor's move to turn the UK into a ‘low tax, high wage, low welfare' economy. It clearly stands to benefit a substantial number of hospitality workers. Employers will have to absorb the extra cost through a combination of productivity gains, increases in prices, a dip in profits, reducing hours or new hires, and changes to their overall pay structures.

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