As New York and California work up to a $15-per-hour minimum wage, hoteliers must find ways to contain and cope with the increased cost for personnel.
REPORT FROM THE U.S.—Hoteliers in New York and California could soon face some tough decisions as mandated minimum wage increases are expected to significantly increase the cost of doing business in each of those states.
Sources said hoteliers will need to find creative ways to reduce their payroll or pass costs along to customers as minimum wages gradually ratchet up to $15 an hour in both states.
Mike Doyle, EVP and managing director for CHMWarnick and former president of the Hospitality Asset Managers Association, said hoteliers won’t be able to stand pat as those wage increases take hold.
“I think this will only cause a greater focus on looking at ways to be more efficient and be more creative on how to deliver service and make sure properties are operating as efficiently as they can,” Doyle said.
It’s important that hoteliers don’t underestimate the impacts of a minimum wage increase, said John Kelley, associate at Hotel & Leisure Advisors.
“Labor is already the largest cost in operating a hotel, so the impact will be significant,” he said.
Kelley said wage increases won’t be kept to just employees working at minimum wage, either. In many cases, longer-tenured or higher-level employees will expect their wages to keep pace when they see pay for the bottom-tier employees make a significant jump.
“You’ll have to account for making everyone ‘whole,’” Kelley said.
Minimum wage in California currently sits at $10 an hour and is set to grow to $15 an hour by 2022. Hotels were also hit with a high-profile, industry-specific wage increase in Los Angeles that currently sets the floor at $15.37 an hour for nonunion hotels with 300 or more rooms, and that increase will expand to hotels of 150 or more rooms in July.
Similarly, New York will see its statewide minimum wage hit $15 by 2022, with the wage increase taking hold in New York City by 2019.
Doyle said it’s important for hoteliers across the country to stay informed on how hotels in New York and California deal with the wage shift as there is “movement in this direction” in other places across the country.
- Want more? Read “How hoteliers can handle a minimum-wage jump.”
How to cope
Kelley and Laurel Keller, VP of Hotel & Leisure Advisors, said hoteliers in New York and California are going to have to find ways to cut into payroll, one way or another.
That can take various forms, including taking advantage of in-app check-in and check-out to reduce front-desk staffing levels, cross training more employees to do different tasks, changing benefits for employee groups and even outsourcing work where possible to take advantage of economies of scale.
Doyle agreed that companies like Hilton Worldwide Holdings and Marriott International embracing things like mobile check-in and keyless entry could be areas of cost savings for owners and operators.
“It wouldn’t necessarily eliminate the need for people in that position, but it could allow the hotel to look at reducing the number in that job,” Doyle said.
Kelley and Keller noted that outsourcing things like laundry could even avoid the wage issue entirely in communities near state lines because some services would actually conduct business in other states with lower wage requirements.
Cross training employees to do different jobs can be effective in lowering overall staffing levels, Kelley said. This is something that is almost always on the radar of hoteliers, but it is often put on the back burner during the good times.
“It’s something everyone has good intentions with, but the efforts are never sustained,” Kelley said.
Hoteliers will be tempted to shift benefit packages to offset at least some of the cost from increased wages, Keller and Kelley noted, and this could be done for all employees or even just incoming employees. But they said having different benefit packages for different groups could create discord among employees.
Keller said it will be important for hoteliers to phase in these changes, as the wage increases won’t happen all at once.
“We’re not going to see this overnight,” she said.
Keller said this could also represent an opportunity for hoteliers to look at new technologies and novel ways to cut down on operations costs, like systems that recycle non-potable water for toilets.
Who is most vulnerable?
Kelley and Keller said the minimum wage increases will affect various hotels differently.
Keller said full-service hotels, which start at higher staffing levels, might be forced to streamline what they do in order to reduce overall staffing and trim payroll costs, but select-service properties might be in an even more difficult position.
“The impact is different for different scales,” she said. ”With limited service, wage increases might have more of a negative effect because there’s less room to cut.”
Guy Maisnik, partner and vice chair of the global hospitality group at Jeffer Mangels Butler & Mitchell, said he is worried that other regions of California are less equipped to deal with wage increases than Los Angeles.
“In somewhere like Santa Monica, you can drive rate because there’s lot of demand, but if you get outside the cities, what if you’re talking about a full-service hotel with 110 employees?” he asked. “In LA, with LA rates, that could still work, but in other areas it will be a challenge. Rates aren’t going to be as easy to drive.”
Lessons from Los Angeles
Maisnik said Los Angeles hotels found themselves in the crosshairs of minimum wage lobbying efforts, spearheaded by unions, in part because they were easy targets.
“Because occupancy has been doing so well and there has been so much inbound traffic, it was believed that larger hotels could absorb that cost,” he said. “For the most part, that strategy has worked. Some hotels had to lay off some, and everyone is trying to do more with less employees.”
Maisnik said the consequences will likely be more severe when the $15 minimum wage expands to more hotels in July.
“I think that will be a different story,” he said. “I think this will be challenging for boutique hotel owners. Everybody wants to see people make more money, but I think the concern is whether or not it will impact the number of jobs available.”
Officials with the American Hotel & Lodging Association say they are in the process of surveying Los Angeles hotel general managers about the impact of the minimum wage increase in that city, but AH&LA is not ready yet to release any results from those surveys.