Escalating payroll costs hampering UK hotels’ profit growth

LONDON, England - A new study identified that the pace of growth in payroll costs is hampering the ability of UK hoteliers to increase profit.

Escalating payroll costs hampering UK hotels’ profit growth

LONDON, England – A new study identified that the pace of growth in payroll costs is hampering the ability of UK hoteliers to increase profit.

The study, Benchmarking Beyond RevPAR, which polled a consistent sample of nearly 45,000 hotel bedrooms across the UK over a 15-year period, revealed that payroll now comprises close to one third of a Regional hotel’s cost base.


Profit per available room at hotels in the Regions has dropped by 26.8% in the last 15 years, to £30.49 in 2015 from £41.67 in 2000. During the same period, payroll levels have increased by 25.6% on a per available room basis, equivalent to an uplift of 4.6 percentage points, to 32.1% of total revenue in 2015 from 27.5% in 2000.

One of the key drivers of growth in payroll levels over the last 15 years has been the 80% increase in the national minimum wage, to £6.70 in 2015 from £3.70 in 2000, for the adult hourly rate (ie +21 years).

And alongside the introduction of the National Living Wage in April 2016 and prospective annual increases in this hourly figure, managing payroll levels will remain a challenge for UK hoteliers as the number of hotel staff employed on minimum wage contracts in the UK is projected to increase to 40% by 2020.

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In the Regions, the 28.7% increase in payroll per available room in the Rooms department, played a significant role in the drop in departmental profit conversion to 69.2% in 2015 from 75.1% in 2000.

Increases in payroll as a proportion of departmental revenue were also recorded in ancillary departments at Regional hotels over the last 15 years, including Food & Beverage (+6.2 percentage points) and Leisure (+8.7 percentage points).

In London the picture is more positive as the pace of growth in revenue offset the 21.3% increase in payroll. That said, an uplift in labour on a per available room basis was recorded in Rooms (+27.2%), Food & Beverage (+11.7%) and Leisure (+143.2%) departments in the period from 2000 to 2015.

Pablo Alonso, Hotstats CEO said of the results “it is not hard to understand the acceleration in the development of limited-service hotels when it is ‘the service’ which is now the biggest cost of a hotel operation.”

He added, “The ability of UK hoteliers to manage payroll levels could be further tested if the fall out from Brexit triggers a significant policy change regarding immigration to the UK.”

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