HotStats | February 24, 2020
For hoteliers and investors alike, it’s easy to be blown away by the revenue figures. Unfortunately, when labor costs rise, revenues can quickly decay. This is why the control of payroll data is at the heart of profitability.
Rising labor costs have scared the most seasoned hoteliers. And there are reasons to worry: ignoring the payroll can gut the profits. Consider how American hotels have performed in the third quarter Last year. Total revenue (TRevPAR) surged across the board, but struggled to filter down to bottom line.
Hotels were hit by a 3.7% year-over-year increase in labor costs.
The good news? Taking control of your payroll can free the operation from the vagaries of the job market and reveal new opportunities for profit. Here’s how to analyze the different components of your hotel payroll for better profit.
Why you should analyze your payroll
Payroll can be the fat that powers a refined machine. But if it’s badly managed, high labor costs can spoil the whole operation.
This is what makes accurate payroll management so crucial. Here’s a quick look at what makes labor costs such a dynamic number in the hospitality industry:
- Work has a high return on investment – The hospitality industry is driven by experiences. In fact, a Deloitte survey says 56% of guests who left a review for a positive stay did so because of experiences that exceeded or pleasantly surprised them. This means that investing strategically in the workforce can turn into more loyal and happier customers.
- It stimulates operational strength – A hotel is much more than a simple income in the room. This means that the more efficiently every operation runs, whether it’s an F&B operation, a spa or a golf resort, the stronger the financial position in the end.
- It is a high cost item – It’s simple. Since labor tends to be a large portion of a hotel’s costs, a more profitable payroll makes it easier to generate profits.
Which payroll components to analyze?
When it comes to the hospitality industry, labor costs are broken down by type of payments made and by category of paid employees. And both have deep intrinsic value.
First of all, hotel managers must follow the category of worker. Here are the easiest ways to break down these components:
- Contractual / outsourced work
Second, make sure you cover as wide a range of costs as possible. This means looking at these components of payroll:
- Distribution of service charges
- Social charges
When setting up benchmarks and analyzing payroll, the best route is to combine these two components and plot the results.
How to set up hotel payroll benchmarking
Remember, payroll tells a deeper story about labor costs, and so delving into the details of where the money goes will reveal new opportunities. Nonetheless, it is important to find out the costs from each source throughout the operation. Here are the benchmarking categories to consider:
- Payroll as a% of total turnover
- Payroll as% of total expenditure
- Management salaries and wages
- Salaries and wages of non-managers
- Total outsourced workforce
- Incentives or bonuses
Appropriately, each category offers an overview of the strategy. For example, maybe the benefits are an exorbitant percentage of the labor costs. It might be worth renegotiating the plans. Or maybe it’s worth relying more on the outsourced workforce.
On the other hand, it might spend too much on contract labor. There may be savings chances by removing some of these tasks internally. Whatever the end result, breaking down the numbers can illuminate a hotel plan and protect it from uncontrollable events.
A closer look at payroll
It’s easy to see the impact employees have on a hotel or resort. However, when looking at the numbers, don’t overlook the less obvious contributors.
Of course, most hotels will monitor the labor costs of front desk operators and room staff, but payroll should encompass the entire operation.
Ultimately, the goal should be to capture the full expense so that it can be used to drive a holistic approach. performance strategy. This means considering every square inch of costs. Here are some often overlooked labor costs:
- Catering staff
- Golf club and spa employees
- Maintenance personnel under contract
- Asset management and maintenance
- Non-management ownership and maintenance
- Additional ownership and maintenance expenses
The bottom line? By diving deeper hotel payroll benchmarks, the hotel will rely less on market developments and more on a global performance strategy. When set up correctly, payroll figures go from a frightening and unpredictable variable to a potential tool for growth.