Hotels Address Higher Labor Costs

Hotels & ResortsNews

Higher Labor Costs in Hotels

Determining what is fair to all parties isn’t an easy task

Meeting planners are not the only ones who worry about the rising costs of their events. Hoteliers are contending with factors that have pushed up their labor expenses over the past few years, which has resulted in lower profit margins for them, higher prices for their customers or both.

Consider that the 2016 Trends in the Hotel Industry study conducted by CBRE Hotels found that nearly 43 percent of hotels’ total operating expenses are for labor, easily their largest expense. What’s more, the U.S. Bureau of Labor Statistics reported that hourly compensation levels for hospitality employees rose by an average of 3.4 percent per year between 2013 and 2015, a big jump from the 0.6 percent annual wage rise between 2010 and 2012.

The recent combination of low unemployment rates and a higher mandated minimum wage or “living wage” in many destinations has exacerbated the pressure on hoteliers seeking to control expenses. Currently, 29 states and the District of Columbia have a minimum wage higher than the federal minimum, with some cities now mandating a minimum of $15 per hour plus inflation-indexed increases each year.

In response, hoteliers are making changes to space design as well as technology in order to deliver service with less labor. For instance, the expansion of hotel public areas for increased social interaction has been accompanied by more “grab and go” food outlets on premises and a general reduction in room-service availability. Also, self-check-in kiosks in lobbies and digital concierges using artificial intelligence are becoming more common.

But the balance between cost and service quality always concerns planners, and such developments heighten that concern. “Attendees get cranky when there is not good service,” says Joan Eisenstodt, president of Eisenstodt Associates, a Washington D.C.-based meetings and training consultancy. “If you are at a property with an unfavorable employee-to-guest ratio, you’re probably going to get some attendee dissatisfaction.”

During the planning process, Eisenstodt always inquires about staffing levels during critical points in her meetings. For instance, given that many of her attendees travel cross-country, she makes sure that enough front-line staff is available in the early morning and late evening on travel days to assist attendees with luggage and check out.

Ethical and Practical Considerations

Planners work hard to stay within budget for every event they coordinate, so that often dictates the destinations they consider using. However, with more companies acting within a framework of corporate social responsibility (CSR), should planners consistently use destinations known for particularly low labor costs?

“The United Nations Global Compact on CSR specifies a human component,” Eisenstodt says. “So, our concept of ‘sustainable meetings’ should include that ethical dimension, along with the environmental. Basically, are we willing to sustain the human beings who work on our meetings?”

One way planners can address this issue in a destination with relatively low wages is by negotiating how service charges and gratuities included on the group’s master bill will be distributed. “With most properties, it is a challenge to get them to allocate more to the staff who work the meeting,” Eisenstodt says.

Kate Christensen, president of KCA Event Management in Chandler, Arizona, finds that some, but not all, properties will budge on that matter.

”They usually keep most of it for the house,” she says. “That gives me heartburn, because we’re already charged for things like package receiving and delivery, meeting-room changeovers and other labor. You just have to discuss up front that you want staff to get a certain percentage of service charges.”

In those instances where a group wants to—or must—use a destination where labor costs are high, planners find ways to minimize other costs to make the overall budget work. Begin by creating a detailed request for proposal (RFP) that asks about state, local and tourism taxes, plus all fees the hotel will assess.

Disclosing a Budget Range

One other way to use the RFP is to disclose a budget range for certain aspects of the meeting, to see what the property can provide in both goods and staff levels within that range.

“So many planners don’t want to give hard numbers on their line items,” Eisenstodt says. But if a planner gives the hotel a range of, say, $200,000 to $275,000 for food and beverage and asks for various room setups and sample menus that fit the range, they can compare what each property can do for them, and then negotiate better with the preferred property.

Christensen adapts her logistical approach for clients using higher-cost destinations. She specifies more buffets versus plated meals; minimizes changes to meeting-room setups; and negotiates a lower “oversight” fee for the property’s exclusive AV provider if she uses her own AV provider.


Rob Carey is a business journalist and principal of Meetings & Hospitality Insight, a content marketing firm for the group-business market.