How to Tackle Wage Increases and Employee Retention Challenges in the UK Hospitality Sector

The UK hospitality sector is facing significant challenges due to rising wage costs, inflation, and evolving employee expectations. In a recent webinar, industry leaders offered practical strategies to tackle these issues effectively.

Managing Wage Increases and Financial Strain in the UK Hospitality Sector

Recent hikes in the minimum wage have added to the sector’s financial burden. Ros Hardiman, Group People & Organisation Development Director at Kew Green Hotels, highlighted that around 70% of their workforce was affected this year by the changes in minimum wage, which is a challenge, but has been an ongoing problem for some time. 

“What has changed is the context in which we’re operating,” Hardiman shares. Pre-covid, businesses were generally buoyant, had strong revenues, and low inflation. Now, she notes that operators are not able to focus solely on living wage increases.

“Post-covid the landscape has been completely different, and it’s brought a lot of challenges in cost management and this year we are seeing a flattening in demand as well which is presenting additional challenges.” Ros Hardiman

Businesses must now adopt meticulous payroll management practices. Hardiman shared that her team has needed to handle pay reviews with forensic detail. When it was once possible to look at payroll costs and tack on a percentage, now everything comes down to individual pay rates. With the added pressure of maintaining consistency and factoring in regional variations, the process of conducting pay reviews is much longer and more complex.

“Staff cuts are not an option anymore, and I don’t think they are in many businesses. We’ve all trimmed as much as we possibly can. Now it’s about looking at productivity and automation to make our payroll budgets go further.” Ros Hardiman

Actionable Takeaways:

  • Conduct regular payroll audits to identify potential cost-saving opportunities.
  • Implement scalable payroll solutions that adapt to wage changes.
  • Consider flexible wage structures to manage sudden increases in labor costs.

Maintaining Quality and Service Standards Amid Financial Challenges

Despite financial pressures, maintaining high-quality service is important to businesses striving to be an employer and brand of choice. Samantha Hamilton-Green, Group People & Brand Director at Dakota Hotels, emphasized the importance of balancing cost management with guest experience. “The challenge with any business is you are in no way trying to reduce quality or trying to reduce service levels. How can we balance those without adversely impacting the guest experience?” she asked.

Hamilton-Green noted that Dakota Hotels has the board’s support to not only meet market salary expectations but exceed them, positioning themselves as an employer of choice. The challenge lies in exceeding these expectations while achieving the necessary returns for their board and shareholders.

Technology plays a pivotal role in managing these challenges. Nikki Gray, Director of UK Solutions Consulting at Harri, highlighted the potential of tech solutions to optimize workforce management. 

“One of the things technology gives us now is the ability to collect a huge amount of data. With that data we can start to work smarter with time and costs.” Nikki Gray

Gray cites an example using her son, who recently became employed in the hospitality industry and recently was impacted twice by wage increase legislation within the first few months. He mentions he will stand around for hours with nothing to do during non-peak times. Imagine if there are three employees standing around for an hour, doing nothing. At the current minimum wage requirements, that’s £26 an hour just in wage costs alone.

Utilizing historical data and predictive analytics, businesses can refine their scheduling, improve efficiency, and reduce labor costs by figuring out where it is possible to cut back and where it is necessary to get more cover.

Actionable Takeaways:

  • Regularly collect and act on employee feedback, find ways to measure employee sentiment to identify issues before they escalate
  • Use predictive analytics that incorporates historical data, weather, and local events to optimize staff scheduling
  • Regularly review performance data to identify areas for improvement and refine forecasting accuracy.

Enhancing Employee Retention and Experience Through Strategic Initiatives

Retaining employees in a competitive job market is another significant challenge. Gray pointed out the high cost of employee turnover, estimated at 16% of the annual pay amount for lower-paid roles. This figure is estimated from direct costs as well as indirect costs like ramping time, training, advertising a role, interviewing, etc.

“The impact of delivering a really good employee experience is huge, but it’s also become an expectation,” she said. “Now if they’re not getting what they want, including things like development opportunities, they will move on. And the toll that it takes hits the bottom line, but it also hits team morale.”

For Dakota Hotels, Hamilton-Green shared that investing in their learning and development structure has been invaluable as a long-term strategy that continues to pay off in terms of retaining employees. They also aim to offer a flexible discussion policy where team members have an open platform to raise discussion points at any time, a strategy that doesn’t cost a lot and helps employees feel heard and valued. 

“How do you manage communication? What opportunities are you offering people to develop a connected workforce?” offered Gray. “A McKinsey study showed that improved collaboration and communication through these types of technologies can actually raise the productivity of employees by 20 to 25%. With that greater productivity you’ll get greater efficiencies and increased profitability.”

Actionable Takeaways:

  • Invest in learning and development
  • Establish regular feedback mechanisms to gauge employee satisfaction
  • Offer flexible working arrangements to meet diverse employee needs

Wage hikes, inflation, and evolving employee expectations are challenging business financials. To maintain high service standards, it’s essential to invest in your people, optimize operations, and stay agile with policy changes. Implementing precise payroll practices, leveraging data-driven technology, and promoting flexibility and development can turn these challenges into opportunities for growth and innovation.

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