Wage growth in hospitality will curb living wage impact, says report


Increasing growth in hourly wage rates for staff in hospitality suggest the new national living wage rate may not cost the industry as much as originally predicted, according to new research.

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 living wage of £7.20 that is being introduced in April.

This figure was up from £6.96 a year earlier, while the rate in London (within the M25) already exceeds the living wage after rising to £7.23.

The national hourly rate of £7.04 suggests hospitality operators are paying an 8.3% premium to the minimum wage. The minimum wage rose from £6.50 to £6.70 in October 2015.

It is based on data collated by Fourth Analytics, including the pay of thousands of workers paid by the hour, rather than salaried, across hundreds of hospitality and leisure businesses including bars, pubs and restaurants.

Mike Shipley, analytics and 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.”

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% that follows a similar rise the year before.

Mike added: “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.”

Fourth Analytics works with a host of bar, restaurant, pub, and hotel groups such as Stonegate Pub Company, TGI Friday’s, Casual Dining Group, Fairmont, Fuller’s, Hakkasan, IHG, Marriott, Pizza Express, Starwood, Travelodge and Wagamama.

The research focused on hourly wage rates before 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.

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