To Offset the Increase in Minimum Wage, Focus on Productivity

By Mark Heymann Chairman & CEO, Unifocus | December 25, 2016

Fourteen U.S. states started 2016 with a higher minimum wage, and it seems all but certain that the federal minimum wage, which has remained at $7.25 since 2009, will soon follow. The White House has thrown its support behind the Raise the Wage Act, which would increase the federal minimum wage to $12 by 2020 - a move that also has the support of 60 percent of small businesses, according to a poll conducted for Small Business Majority by Public Policy Polling.

Meanwhile, a Hart Research poll shows that 63 percent of the public favor an even larger federal increase - to $15 - over the same time frame. This higher figure has been embraced by New York's governor, who has signed a bill implementing a 70-percent raise in his state's fast food minimum wage to $15 by 2018, and by several cities that have committed to phase in a $15 minimum wage, including Los Angeles; Portland, Ore.; San Francisco; and Seattle.

Bottom-Line Impact

The benefits of a higher minimum wage are clear for those workers who will bring home a bigger paycheck, but what will it mean for service industry employers and their customers? While historically raising the minimum wage has had little impact on profitability, those increases were typically incremental. In 1978 for example, the federal minimum wage grew from $2.65 to $2.90 - a 25-cent increase. Today's proposed changes are in the ballpark of four or five dollars an hour, which will have a more dramatic effect on organizations. And those that fail to review their business model and adjust their operating philosophy to offset the higher labor costs could potentially experience a dollar-for-dollar negative impact on their bottom line.

The Ripple Effect

Minimum-wage workers may be only a limited percentage of a hotel's staff (this will vary by area of the country and by state), but raising their pay will likely create a ripple effect in the market. Consider that there also will be employees who are paid above the current minimum wage but below the increased minimum wage. If the hotel only raises those workers' wages to the new minimum, it puts them at the same wage level as workers who had been earning less. This could well lead to a discouraged group of employees or a less engaged team, and that could have a broader impact on the bottom line. The alternative would be to increase those employees' wages at the same differential as their minimum-wage-earning colleagues.

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Coming up in March 2019...

Human Resources: An Era of Transition

Traditionally, the human resource department administers five key areas within a hotel operation - compliance, compensation and benefits, organizational dynamics, selection and retention, and training and development. However, HR professionals are also presently involved in culture-building activities, as well as implementing new employee on-boarding practices and engagement initiatives. As a result, HR professionals have been elevated to senior leadership status, creating value and profit within their organization. Still, they continue to face some intractable issues, including a shrinking talent pool and the need to recruit top-notch employees who are empowered to provide outstanding customer service. In order to attract top-tier talent, one option is to take advantage of recruitment opportunities offered through colleges and universities, especially if they have a hospitality major. This pool of prospective employees is likely to be better educated and more enthusiastic than walk-in hires. Also, once hired, there could be additional training and development opportunities that stem from an association with a college or university. Continuing education courses, business conferences, seminars and online instruction - all can be a valuable source of employee development opportunities. In addition to meeting recruitment demands in the present, HR professionals must also be forward-thinking, anticipating the skills that will be needed in the future to meet guest expectations. One such skill that is becoming increasingly valued is “resilience”, the ability to “go with the flow” and not become overwhelmed by the disruptive influences  of change and reinvention. In an era of transition—new technologies, expanding markets, consolidation of brands and businesses, and modifications in people's values and lifestyles - the capacity to remain flexible, nimble and resilient is a valuable skill to possess. The March Hotel Business Review will examine some of the strategies that HR professionals are employing to ensure that their hotel operations continue to thrive.