Hospitality wages spike in January after Government’s National Living Wage announcement

14 February 2020

The average wage in the hospitality industry rose by 2.5% in January to £8.84, in response to the Government’s New Year announcement that the National Living Wage (NLW) will increase by 6.2% to £8.72 in April 2020, according to the latest statistics from Fourth, the software provider for the leisure and hospitality industries.

The figures from Fourth, which are taken from the hourly rates for thousands of workers across 4,000 hospitality businesses, come after a period where wage rates remained relatively flat from April to December. During that period, the average hourly rate for workers over the age of 25 sat around £8.60, roughly 40p greater than the NLW threshold of £8.21 introduced in April 2019.

Since 2016, the hourly wage has been, on average, 43p higher than the NLW; however, this buffer has now decreased as a result of the Government’s commitment to increase the NLW further. The figures suggest a sustained period of wage inflation to meet the new legislative threshold in April 2020, which is currently 12p higher that the average hourly wage.

The data also reveals that the average wage for over 25s has steadily risen by 6% on average each year, over the last three years. For example, in 2017 the NLW increased to £7.50, while the average hourly wage of hospitality workers was £8.12; and in 2018 the NLW increased to £8.21, whereas the average hourly wage for 25-year-olds and above was £8.60.

Mike Shipley, Vice President of Analytics at Fourth, said: “This is the first time in the four years we have been tracking these figures that the average wage of the industry was threatening to track under the new NLW rate, due to be introduced in April, until the average rates increased dramatically by nearly 3% solely in the month of January. Historically, businesses have paid a premium above the NLW to attract and retain the best employees, and January’s rapid wage inflation shows that this is set to continue over the coming months, where it may well rise by a further 2-3% between now and April, as operators continue to seek the best staff.

“A 5-6% spike in the hourly wage rate over one quarter could be hugely impactful on overall net profit margins, reducing it by up to 1-2% in some cases, adding significant labour cost pressures on operators and squeezing already tight margins. To mitigate this, it’s imperative that operators look at measures to drive efficiency and productivity across the business utilising smart technology.”

The average wage of younger age brackets continues to follow the historic trend of tracking ahead of the legislative NLW increases. As of January, the band for 21-24-year-olds in the hospitality industry earns £8.76 an hour on average – 56p more than April’s new NLW rate of £8.20; while 18-20-year-olds earn £8.06 per hour - £1.61 more than April’s new NLW rate of £6.45.

The proposed increases will disproportionately impact the restaurant sector, where the average hourly wage for 25-year-olds and above is currently £8.45.

Shipley added: “The fact that unemployment levels are at their lowest since 1970 means that demand for quality workers is most likely going to increase, further inflating wage rates in a highly competitive labour market. These pressures will likely be exacerbated by a shrinking pool of workers from the EU, as the fallout from Brexit will likely impact the volume of European workers moving to the country, along with permutations around the status of workers currently living and working in the UK. These forces create a perfect storm of spiralling labour costs that will need to be mitigated with end-to-end recruitment and retention programmes, alongside smart productivity programmes.”