Hospitality

3.28 There are signs that the hospitality sector (which is made up of hotels, providers of holiday accommodation, pubs and bars, restaurants and take away food outlets) has recovered from the sharp decline associated with the foot and mouth crisis and the aftermath of the September 11 attacks in the United States. According to ONS UK National Accounts, output was slightly ahead of growth in the service sector as a whole during the first two quarters of 2004.

3.29 Figure 3.12 shows that the number of employee jobs in the hospitality sector grew by around 140,000 to 1.77 million in the four years to September 2004. Over two-thirds of this growth has been in full-time employee jobs, although like retail, the sector is characterised by a high degree of part-time working (just under 60 per cent of jobs are part-time). Employee jobs growth remained strong in 2002 and 2003 and grew by over 10,000 in the year to September 2004.

Figure 3.12

Employee Jobs in the Hospitality Sector, Thousands, 1998-2004

Source: ONS employee jobs series, 1998-2004, GB.

3.30 The minimum wage has had a strong influence on earnings in the hospitality sector, as shown in Figure 3.13. Sixteen per cent of employees were paid at the adult minimum wage in April 2004 according to ASHE 2004a (with supplementary information, not shown), with a further small peak around £5.00 per hour. Increases in lowest decile hourly earnings did not keep pace with the October 2003 uprating of the adult rate (as shown in Appendix 5), rising to £4.44 in Spring 2004. This may reflect the age composition of the workforce in hospitality and fairly widespread use of the youth Development Rate. Twelve per cent of employees were paid less than the adult rate of the minimum wage in Spring 2004. In contrast to the retail sector, in the hospitality sector the shape of the hourly earnings distribution is broadly similar for all firm sizes, although the proportion of employees earning the adult minimum wage is higher in firms with 1-49 employees (19 per cent), than in medium and large firms (12 and 14 per cent respectively).

Figure 3.13

Hourly Earnings Distribution for Employees Aged 18 and Over in the Hospitality Sector, 2002-2004

Source: ASHE, April 2002-2004 without supplementary information.

Notes:

1. NMW label shows the adult NMW rate in April of the given year.

2. Gross hourly earnings excluding overtime.

3.31 The hourly earnings data supports evidence from the hospitality industry that the minimum wage is continuing to have a significant impact. Although it should be noted that responses tend to be biased towards those most affected by the minimum wage, 55 per cent of respondents to our survey from the hospitality sector reported that they had been affected by the October 2003 upratings, up seven percentage points compared with responses to our survey on the impact of the 2001 upratings. IDS (2004b) found that most of the hotels it questioned had set their lowest rates at the minimum wage and nearly half had raised rates to comply with the adult minimum wage of £4.50 per hour, up from one third in 2001.

3.32 Hospitality employer associations emphasised the impact on differentials, with companies simplifying pay structures and some reporting difficulties in recruiting and retaining staff. A case study from a major company in the pub and restaurant sector indicated that it had simplified its pay structure from eight to three levels. As a result, differentials to reward experience and skills had largely disappeared, although the company had maintained a higher rate to reflect supervisory responsibilities. The GMB, however, told us that the hotels with which it negotiated had absorbed recent minimum wage upratings with no apparent ill effect and that in many cases the negotiations had sharpened the focus of the companies concerned on attracting and retaining skilled workers.

3.33 Figure 3.14 shows the effects of the 2002 and 2003 upratings of the minimum wage on earnings differentials in the hospitality sector. Employees earning around the level of the adult minimum wage received below median increases following the small October 2002 upratings, but above average increases as a result of the October 2003 upratings. There was also a partial restoration of differentials for employees earning up to about £5.00 per hour following the October 2003 upratings.

Figure 3.14

Increase in Hourly Earnings Minus the Increase in Median Earnings by Percentile for Employees Aged 18 and Over in the Hospitality Sector, 2002-2004

Source: ASHE April 2002-2004, without supplementary information.

3.34 The hospitality sector continues to face high staff turnover, difficulties in recruitment and retention and labour shortages (chefs, for example, continue to be difficult to find), although the British Hospitality Association (BHA) told us that these appear to have eased somewhat in recent months, partly because more staff have been recruited from overseas. The BHA said that, from May to September 2004, about 24,000 workers from eight Eastern European EU accession countries registered to work within the UK hospitality industry.

Low Pay Commission Research A hotel reported that one-quarter of its domestic staff were from eastern Europe ... not only because they were prepared to work at this rate, while local staff were not, but ... the quality of these staff, from a work, service and educational perspective, was considerably higher.... Cronin and Thewlis, 2004. Qualitative Research on Firms' Adjustments to the Minimum Wage: Final Report to the Low Pay Commission

3.35 While there is no sign that minimum wage upratings have led to job losses, we received evidence that employers have taken a range of actions to control costs, including reducing hours, typically involving 'letting staff leave early if there was no work for them to do during less busy periods' (Cronin and Thewlis, 2004). Although there is some bias towards those most affected, our survey suggested that 47 per cent of hospitality employers who stated that they were affected by the 2003 upratings had cut overall staffing and 45 per cent had cut basic hours. This sector was also the most likely in our survey to control non-labour costs (41 per cent). Within the pub sector, the British Beer and Pub Association and the CBI both attributed a decline in managed houses to a desire on the part of brewery chains to pass outlets which were not cost-effective to the tenanted sector.

3.36 Overall the hospitality sector is clearly affected by the minimum wage, and the October 2004 increases are likely to create adjustment difficulties for some firms. But the dynamics of hospitality sector employment, and the recruiting difficulties which the sector faces, suggest that the minimum wage so far has had no significantly harmful employment effects.

'The rise to £4.85 will add £187,000 to the company's annual wage bill. The company will try to recover this amount principally by cutting hours. So although jobs will not be lost, hours worked and hence take home pay will be affected.'

Brewery employing 1000 people

CBI evidence

'At present the accommodation offset is only around 50% of the average cost of providing accommodation to staff in pubs ... the offset should be increased to be more reflective of accommodation costs.'

British Beer and Pub Association evidence

3.37 We now look at two provisions of the minimum wage legislation which are mainly of interest to the hospitality sector - the accommodation offset and the treatment of tips - before turning to consider the cleaning sector.

Accommodation Offset

3.38 We continue to receive evidence about the level of the accommodation offset. In previous reports we have commented that the offset is not intended to reflect the commercial value of a property or the full cost to the employer of providing accommodation. Rather it has been set so as to strike a balance between these costs, the advantages to the employer of housing workers close to the place of work, and the desire to ensure workers a minimum level of cash wages. In recent years, the accommodation offset has risen in line with increases in the adult minimum wage. It has also been simplified. In our fourth report (2003) we recommended a change to what we considered to be the unnecessarily complicated system of hourly, daily and weekly offset rates. We are pleased that the Government has replaced the old system with a single daily rate, which increased to £3.75 per day from 1 October 2004.

3.39 In evidence, hospitality employer organisations called for a significant increase in the level of the offset to around £40-£50 per week, to reflect the actual costs to employers, to act as an incentive to retain the benefit for workers and to even out differences in pay for those employees who do not receive accommodation. IDS (2004b) found that the majority of hotels charged live-in workers £22-£45 per week for accommodation. Within agriculture, the National Farmers' Union argued that accommodation was a significant benefit and that the minimum wage should take greater account of its market value. In contrast, the GMB called for the offset to be frozen for a few years to reflect the significant advantages to the employer of having workers on or near the premises. It was concerned that some employers - particularly in holiday camps - provided accommodation of very low quality.

'We have received reports of sharing rooms with one or more other workers, where each worker's wage has been subject to the deduction; substandard, unlettable accommodation; and short-term arrangements which leave workers vulnerable.'

GMB evidence

3.40 We continue to believe that the balanced approach we have taken in previous reports is a fair one, which recognises in part the costs incurred by employers, while ensuring that the value of the minimum wage is maintained for those workers who are provided with accommodation as part of their job. We therefore recommend once again that the accommodation offset should increase in line with the adult rate of the minimum wage, rising to £3.90 per day from October 2005 and £4.15 per day from October 2006.

Tips

3.41 At present tips can only count towards minimum wage pay if they are collected centrally by the employer and distributed to staff through the payroll. Our research and visits suggest that there continues to be a range of practice, with some employers choosing to put tips through the payroll to make up minimum wage pay and others preferring not to get involved in the collection or distribution of tips and gratuities to staff. While some employer organisations would prefer the rules on the treatment of tips to be relaxed, we believe the current arrangements are working reasonably well and should remain unchanged.