The hotel industry prepares for another year of rising labor costs, which likely means higher wages and more job opportunities for employees
Hotels’ labor costs are rising. Robert Mandelbaum, Director of Research Information Services at PKF Hospitality Research, reports that labor costs went up by 2.0 percent in 2014 and 4.5 percent in 2015 after controlling for inflation. Much of the increase in costs comes from higher wages; between 2013 and 2015, hourly wages for hospitality employees rose by an average of 3.4 percent a year.
Mandelbaum attributes this to low levels of unemployment that require employers to bid up wages to attract employees. Hours worked are increasing too. In 2015, the total number of hours hotel employees worked grew by 1.3 percent. Mandelbaum predicts that both wages and hours worked will keep going up in 2017.
It appears that employees in many different positions are enjoying similar wage gains. Randy Pullen, President and CEO of WageWatch, wrote in an email, “In general, increases have been distributed fairly evenly between line positions and managers, right around 3%,” although he added that increases vary with local market conditions. He also wrote that minimum wage increases are changing the pay structure for some employees. “[I]n markets where the minimum wage has gone up to $12 and higher, we are seeing movement away from [a] tipped wage to a higher wage with the tips either added to the bill as an additional charge or tips being distributed to the team.”
Mandelbaum says that in 2015, the number of hours worked by hotel employees grew faster than the number of occupied rooms, suggesting that hotel managers will want to improve workers’ productivity to contain costs. This is a challenge because interaction with employees is important to guests. “Lodging for the most part is an industry that hasn't automated to the same degree as other industries because it's a high level of service. Personal service is a large component of the hospitality industry,” he says.
Mandelbaum says that as labor becomes more expensive due to forces out of hotels’ control, hotel managers try to contain labor costs by using labor more efficiently. “Since the wage rates are going up, the one thing that is more controllable is the hours worked,” he says. However, he says that “it's difficult to cut hours because hotels are performing at all-time record occupancy levels.” Instead, managers may try to reduce the frequency of some tasks, such as leaving sheets and towels in guests’ rooms instead of changing them daily for a short stay. Another strategy is cross-training. Managers may train employees to perform multiple roles, such as working a front desk and serving food; they can then assign the same person to different tasks depending on what is needed at a given moment.
Mandelbaum says that another tactic for controlling costs is leasing labor from staffing agencies, “especially in areas like housekeeping, where it's somewhat variable. You may need 20 room attendants to clean rooms on Tuesday, but occupancy levels are low on Wednesdays so you only need five or six.” From a cost-cutting perspective, a benefit of leasing labor is that the hotel does not have to cover benefits for employees of an outside agency.
A possible downside of leasing labor is that the hotel could be legally considered a joint employer with the staffing company, and Mandelbaum identifies evolving joint employer doctrine as a potential factor affecting hotels’ labor costs in the future. David Sherwyn, a professor of law and hospitality human resources at Cornell University’s School of Hotel Administration, explains that under joint employer doctrine, a hotel could be legally liable if it exerts enough control over leased workers and if the staffing agency that employs them fails to comply with labor laws. Hotels that are worried about being sued for this reason may choose to contract only with agencies that are known to be reliable, which could cost them a little more. Alternatively, hotels could decide not to lease employees and to hire them directly.
“Does it cost you more if you say, ‘The heck with it. I'm just going to make these people my full-time employees,’ and sometimes you don't really have the work for them? Yes, probably,” Sherwyn says, and he adds that this extra cost is well worth it because the joint employer doctrine increases the likelihood that employers treat workers well.
“We want to make sure that people are complying with the law and so on. Taking joint employer liability for those extra five or ten room attendants, that's okay,” Sherwyn says. He adds, “I would argue that having these companies, these labor suppliers, be legitimate employers who do the right thing is not a bad idea. It's kind of nice, kind of good for America.”Thus, the application of joint employer doctrine could lead to a few more jobs opening up in hotels as opposed to outside agencies.
Where Sherwyn believes joint employment doctrine could conceivably have a more drastic impact on the hotel industry is franchising. He says that some legal cases have put franchising “under scrutiny.” “The question that we don't have the answer to is, ‘When in the franchise relationship is the franchisor so involved that it is a joint employer?’ We're waiting on that, with the McDonald's case,” he says, referring to the dispute between McDonald’s and the National Labor Relations Board over whether McDonald’s is a joint employer of workers at its franchises.
If a franchisee and franchisor are found to be joint employers, that would upend the entire business model. Franchisors would have to take responsibility for all their franchisees’ employees, and the cost of building the HR infrastructure to accomplish that would render franchising unprofitable, prompting companies to leave the business.
Sherwyn believes that franchisors could still make the model work if they contract only with experienced and proven franchisees who can be trusted to comply with the law and who have the financial resources to absorb lawsuits. Buying a franchise would then no longer be an option for entrepreneurial people who want to take a financial risk and prove themselves. Sherwyn emphasizes that the outcome of the McDonald’s case remains to be seen. “It's been going on for a long time, and it's going to go on for a long time,” he says.
Looking ahead to 2017, Mandelbaum expects there to be many new jobs in hotels because of record levels of hotel construction. He explains that the banking crisis that caused the 2009 crisis made it more difficult to get a loan for hotel development. Since the recession, there has been less hotel construction than in previous economic recoveries. Now, that’s changing. “It's starting to pick up now,” Mandelbaum says, “and it's starting to exceed past long-run average levels of new hotel development. So that will open up more opportunities for people that are looking to enter the hospitality industry.”