What does the rising National Minimum Wage mean for the hospitality industry?

By Sophie Witts contact

- Last updated on GMT

The rise in minimum wage comes at a time when businesses are planning to recruit more staff
The rise in minimum wage comes at a time when businesses are planning to recruit more staff

Related tags: National minimum wage, Minimum wage

Sixty per cent of hospitality businesses are planning to increase wages in the year ahead, according to Barclay’s Employers Survey 2015.

However, following the government announcement yesterday (17 March) that the National Minimum Wage will increase by 20p, all businesses will be required to pay staff upwards of £6.70 per hour from October 2015.

As the hospitality industry shows signs of continual expansion, with the UK eating out sector estimated to grow by £10bn by 2019​, what do wage increases mean for the industry?

Wage increase could damage apprenticeships

Apprenticeships have been hailed as a means to fill the growing skills gap in the industry, with Barclays reporting that just over a third of operators took on apprentices in 2014, with 39 per cent planning to do so in 2015.

However, there are concerns that the government plan to raise the apprenticeship rate by 20 per cent (57p) to £3.30 per hour will reduce the number of positions companies will offer in the future.

The Association of Licensed Multiple Retailers (ALMR) chief executive, Kate Nicholls, said: “The increase in the apprenticeship rate may be detrimental to the excellent work done in increasing training and skill levels. Keeping wages affordable is a good first step but we would also like to see increased support, particularly for adult apprentices.

“The rise in the apprentice rate will increase the need for fully-funded apprenticeships for 19-24 year olds and we are also calling for additional funding for over-25s to encourage those people who have not been through higher education to discover the range of careers our sector offers.”

Following National Apprenticeship Week 2015 the government has announced the introduction of new standards for hospitality apprenticeships​ designed to aid progression to management and high skill positions.

As industry expands, skills shortage worsens

The rising minimum wage comes at a time when just under half (49 per cent) of hospitality and leisure businesses are expecting to boost staff levels, according to Barclay’s report.

The increase looks set to have a wide effect on the industry, with up to 100 per cent of businesses recruiting for low or unskilled jobs in 2015, up from 66 per cent in 2014.

While this is a sign of positive growth within the industry, 70 per cent of the sector continues to experience a shortage of skilled labour, compared to 54 per cent in other industries.

Reports from recruitment agencies indicate the problem has worsened​, with more employers turning to agencies as a source for staff.

Over the next year, 47 per cent of businesses are creating jobs at senior management level, while 72 per cent are looking to increase jobs at middle or junior management level.

Mike Saul, head of hospitality and leisure at Barclays, said: “With further Barclays research forecasting that by 2017, total expenditure by domestic and overseas consumers in the UK will reach over £135 billion, it is imperative that businesses have the right people in the right jobs to ensure they are well-positioned for these future growth opportunities. Encouragingly, findings from this report would tend to indicate that the sector is gearing up to meet this challenge head on in 2015.”

Looking ahead

Hospitality businesses were among those 'named and shamed' for failing to pay National Minimum Wage​ this year, and the government crackdown on employers looks set to continue. There are plans to increase HMRC's £9.2m enforcement budget by a further £3m, to help fund over 70 extra compliance officers.

With the general election looming, the future of minimum wage remains uncertain. If elected, Ed Miliband has pledged to increase National Minimum Wage to £8 per hour by 2020​. Though welcomed by trade union GMB, there were concerns from business leaders that the increase could put a strain on smaller firms.

Related topics: Business, People, Trends & Reports

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