How to cope with increasing wage pressures

Wages will inevitably continue to rise, so now is the time to ensure all your other costs are as lean as they can be, says Andrew Brookes

Hospitality businesses are still struggling with the aftermath of the pandemic, with many carrying significantly higher debt than before Covid-19. Unsurprisingly, increased interest rates have magnified the problem and squeezed already tight margins.

The war in Ukraine has added two further problems by significantly increasing the cost of food and fuel. Inevitably, this applies pressure to pass on higher prices and creates an uncomfortable position for businesses vying to maintain market share during a cost of living crisis.

Sadly, rather than seeing light at the end of the tunnel, yet more problems are fast approaching: the requirement to pass tips on to employees and significant increases in the rate of the National Minimum Wage from April. The effects of these will be extremely difficult for many businesses in the sector.

Looking further ahead, National Minimum Wage is likely to increase consistently over the coming years, probably by a higher rate than inflation. It is prudent to expect this to increase to around £16 an hour within the next five years. Increasing the National Minimum Wage will inevitably apply pressure to increase the wages of more senior staff too. Those currently paid more than National Minimum Wage to reflect seniority or added responsibility will want to maintain the pay differentials and so the whole wage structure will therefore be under pressure.

This situation does not paint a rosy picture, but there are steps a business can take to help keep itself above the waterline.

Count staff hours

Can you be smarter with your staff rota, so that staff levels are appropriate for expected customer numbers? Is there is scope to reduce the employee hours? Is it possible to cope with one fewer staff member for some opening hours without quality of service falling? Is delaying the start time for an employee by an hour or two manageable?

Open and shut

Ensure you have good quality information about your business. When are you busy and when are you not? Are you open for optimum hours to maximise busy periods? Are there periods where it costs money to be open and should you consider closing during these? Consider changing opening hours to concentrate on the most profitable periods.

Check profitability

If you have multiple sites, do you know the profitability of each location? This information will enable you to compare margins, meaning you can target resources appropriately. If one location is underperforming, why? Should you consider a different approach for that site? If the site is dragging down overall performance, can performance be improved or should it close? Accurate data can enable you to drive profitability.

Go automatic

With the National Living Wage expected to rise significantly each year, can technology play a part in performing some of the tasks currently undertaken by employees? This will maximise the value you can extract from staff’s time and ensure efficiency – at a basic level, an automated online booking system could help, for example.

Don’t count on tips

Stop adding compulsory or suggested tips to your bills and adjust prices on your menu accordingly. If you are currently relying on compulsory or suggested tips to maintain business cash flow, this policy will fail in a few months’ time. It’s essential to reach a position where the menu price is sufficient to drive revenue, given it will soon be compulsory to pass any tip element to the staff.

Look at other costs carefully

With significant cost increases already in the pipeline, forecasting and budgeting has never been more important. Review fixed costs to ensure they remain of good value, revisit the supply chain, negotiate with creditors and use competition to your advantage to drive down costs. Do not assume that the status quo must remain.

Get some advice

Take professional advice regarding strategic planning. A professional can help you avoid “blindness” from being too close to your business, as well as give you visibility of what other businesses are doing.

Andrew Brookes is head of employment tax solutions at Menzies LLP

Photo: Jacob Lund/Shutterstock