Pay rises sharply in hospitality, but hiring starts to slow

Wages in the hospitality and retail industry have seen an “unprecedented” increase in the last year, according to new research conducted by employment operating platform Employment Hero. 

They found that pay in these two industries had risen by an eye-watering 18% in the last year, alongside a slowdown in hiring rates.

One likely explanation behind the trend is this month’s National Minimum Wage and employer National Insurance contribution increases, for which businesses are already adjusting. It is these higher labour costs, as well as broader employment law changes, that are making businesses more hesitant to hire.

Pay rises as April changes loom

The increase in wages has happened before the new minimum wage rates and employer NI contributions are set to take effect, which may suggest that employers have already upped pay to reflect the higher rates.

In case you missed it, from this week, employers will face higher National Insurance costs, with the main rate rising from 13.8% to 15%. At the same time, the threshold at which contributions begin will be lowered to £5,000.

The National Living Wage for those aged 21 and over will also increase, reaching £12.71 an hour, up 50p, or 4.1%. For a full-time employee working 40 hours a week, that equates to roughly £20 more in weekly pre-tax earnings.

Younger workers will see a bump in pay as well. The National Minimum Wage for 18 to 20-year-olds will climb to £10.85 an hour, while pay for apprentices and 16- to 17-year-olds will increase to £8.00.

Hospitality and retail hiring slow

Alongside these significant increases in pay, employment growth across the sector has fallen by just over 1%, indicating that employers may be adopting a more cautious approach to recruitment. 

Why is this happening? Well, businesses will soon be faced with cost pressures beyond what they’re shelling out for labour, such as the business rate rises expected to come in with the new tax year, making it much harder to justify a hiring spree.

In addition, the Employment Rights Act now means that employers cannot maintain zero-hour contracts in the same way as they once could, and must now offer day-one rights for sick pay and paternity leave. While the changes will no doubt benefit workers, they also come with costs and considerations for businesses to deal with. 

Entry-level roles in focus

Kevin Fitzgerald, managing director of Employment Hero, told LBC: “While the national minimum wage increase is driving an immediate uplift in pay, it’s landing at the same time as wider employment law changes that are increasing the cost and complexity of hiring.

“Businesses are having to make decisions now about how they structure their workforce going forward. For many, that means being more cautious about hiring, particularly in roles that have traditionally relied on part-time or younger workers.”

The unfortunate likelihood is that the hiring slowdown in hospitality could be felt most acutely by younger workers, who fill many entry-level, part-time, or casual roles in the industry if employers begin to work with leaner, perhaps more experienced, senior team members.

Generally, hospitality businesses rely on a level of flexibility with their staffing models, and the changes to zero-hour contracts and rising wage floors will make that tougher to maintain.

Discover the ales and ails of hospitality

Planet of the Grapes founder Matt Harris has over 25 years of experience in hospitality. Read his bi-monthly column for Startups now.

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