Hotel salaries, wages are on the rise
01 DECEMBER 2015 9:06 AM
Data analyzed by PKF shows that last year operating expenses hit their greatest annual growth since 2007.
ATLANTA—Operating expenses for United States hotels rose 4.9% in 2014, according to the 2015 edition of CBRE Hotels’ PKF Hospitality Research’s “Trends in the hotel industry” report. This increase is the greatest annual growth in ExPAR since 2007 and uncharacteristic of the strict cost controls implemented during the initial years of the recovery from the 2009 Great Recession.
The following analysis examines the data from the report to see where hotel operating costs are heading.
When investigating hotel operating expenses, the first items we look at are labor costs.
In 2014, labor costs averaged 31.5% of total revenue and 44.2% of total expenses. Over the years, these two ratios have remained fairly consistent, indicating that hotel managers have done a good job of adjusting costs relative to changes in market conditions. This is possible because labor costs are a highly variable expense.
Sometimes external factors will influence labor costs. In general, these external factors tend to be less controllable by management.
During 2014, the external factor that had the greatest influence on labor costs was the continuing decline in the national unemployment rate.
According to the Bureau of Labor Statistics, the national unemployment rate dropped to 6.2% in 2014. This contributed to the 3.6% increase in the average hourly compensation rate for workers in the U.S. hospitality industry. From 2010 through 2012, high levels of unemployment suppressed compensation growth to less than 1.5%.
Per the 10th edition of the Uniform System of Accounts for the Lodging Industry, there are two components to total labor costs. In 2014, salaries, wages and bonuses accounted for 70.4% of total labors costs with the remainder attributable to payroll-related expenses (employee benefits).
In 2014, the salaries, wages and bonuses component of labor costs increased by 3.7%, while the payroll-related component grew by 3.8%. This differs from recent history when mandated benefits and rising taxes caused the payroll-related cost component to be the dominant driver of labor costs.
To offset the increasing pressures on salaries and wages, hotel managers responded by controlling staffing levels. In 2014, PKF-HR estimates that the total hours worked by employees at the hotels in the survey grew 0.6%. Considering that the number of occupied rooms in the sample increased 3%, it is clear that operators were able to achieve significant increases in employee productivity during the year.
Departmental cost controls
In 2014, the greatest increases in labor costs were observed in the rooms and sales and marketing departments.
Rooms department labor consists of room attendants, front-desk clerks, bell staff and laundry workers, whose schedules are significantly influenced by the volume of business at the hotel. Therefore, the 3% increase in occupied rooms explains most of the 4.7% rise in rooms department labor costs for the year.
Within sales and marketing sectors, a 4.8% increase in salaries, wages and bonuses drove the 4.5% increase in total department labor costs. Of all the departments, employees in sales and marketing have the highest occurrence of incentive-related compensation. With occupancy, revenue per available room and profit levels hitting all-time record levels, it’s likely that sales-and-marketing department personnel were able to earn significant bonuses in 2014.
Excluding other operated departments, which vary from property to property, the departments that saw the least increase in labor costs during 2014 were administrative and general and maintenance. Staffing in these departments is not significantly influenced by changes in occupied rooms.
In 11 of the past 15 years, external factors have had the greatest impact on the payroll-related component of labor costs. Hoteliers have had to face the pressure of rising taxes and increases in mandated employee benefits.
Looking toward the future, it appears that hotel operators will now have to focus on salaries, wages and bonuses. Low levels of unemployment, combined with the increasing minimum and living wage legislation, will continue to place upward pressure on the salaries and wages hoteliers must pay their staff.
Robert Mandelbaum is Director of Research Information Services for PKF-HR, a CBRE Company. He is located in the firm’s Atlanta office.
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