With the upcoming Budget announcement to the House of Commons, it is worth considering what might be in-store for the hotel, leisure and tourism sector.
From a cost perspective, wages and salaries are clearly the most significant expense for many hotels and tourism businesses. When the living wage was introduced in April 2016 there was an expectation that this would significantly eat away at margins achieved by hoteliers. In 2015 the percentage of wage costs to turnover averaged at 32% and we expected to see this percentage increase to around 40% because of the living wage. There was a surprising trend though where hotels were able to push rates in tandem with the increase with wage costs. In the last couple of years however, the percentage has started to creep back up reaching 36% in 2019.
Recent announcements suggest that there will be further pressures imposed on the tourism and leisure sector further exacerbating wage costs in the sector.
National minimum wage (NMW) and national living wage
At Christmas the Government announced an increase in the national living wage of 6.2% from £8.21 to £8.72 from 1 April 2020, forecasting it will increase to £10.50 by 2024. The question is whether rates and spend per head can be used to mitigate these increases.
In addition we are continuing to see employers mentioned in the press for failing to comply with the legislation and recent figures show over 23% of businesses who were ‘named and shamed’ by HMRC for non-compliance were in the hospitality sector. The April 2019 Low Pay Commission report suggested that there were still 369,000 workers being underpaid and they estimated that 12% of these workers were in the hospitality sector.
The complexities of hotel sector payrolls make this an unsurprising statistic and employers could be breaching the legislation unknowingly, but could still be hit with huge penalties of up to 90% of the underpayment, which our minimum wage tax specialists reviewed in their recent blog ‘National minimum wage – even tougher penalties for non-compliance on the cards?’
One of the key issues we see with NMW compliance is in the situation where deductions are taken from an employees pay for employer-provided accommodation. Deductions in excess of the accommodation offset rates, a rate set by HMRC, will be included in the calculation when deciding whether the NMW has been paid. In 2018 the weekly offset rate was £49.00 increasing in April 2020 to £57.40 but we expect to see further increases to this figure.
In October 2019 the Queen’s Speech stated that in the future employers must ensure that all tips are passed on to their employees and there must be a system in place to demonstrate this. The briefing note went on to explain that an Employment Bill will enhance workers’ rights, support flexible working, extend unpaid carers’ entitlement to leave and ensure workers keep their hard earned tips. We are awaiting draft legislation and guidance on this, which we could see published following the budget announcements.
Supporting family business
Changes to increase the amount workers earn and keep of their wages will have a significant effect on the leisure and tourism sector but the Conservatives have been clear throughout their election manifesto that “family businesses are the backbone of the economy and Britain is immeasurably stronger for their contribution”. Promises made in the Conservative manifesto to support family and small businesses included:
- Increasing the employment allowance for small businesses
- Investing in the National Skills Fund and helping employers to invest in their people by improving the workings of the Apprenticeship Levy
- Encourage investment in buildings and equipment; we could see some general announcements in the budget to improving capital allowances through extending the annual investment allowance (currently £1m until 31 December 2020)
We may see announcements on some or all of these on 11 March and with an 80 strong majority in government we could very easily see some dramatic proposals being put forward that could impact the hotel and leisure sector.
Should you have concerns with your national minimum wage compliance, PKF Francis Clark’s employer solutions team specialising in minimum wage compliance, please contact Scott Campbell or Steve Ashworth who head up the minimum wage team and they would be happy to support you.
If you have any questions on how we can help your hotel, leisure or tourism business, please contact Tom Roach, head of the hotel and leisure sector.
For more articles on what we are expecting to see on Budget day, please visit our Budget 2020 page found here, where you will also be able to join us for our live feed from 1.30pm on the day.