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Paul Zimmerman
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Sound and Savvy Operational Solutions to Offsetting the Increased Minimum Hotel Wage

Article originally appeared in HALA Newsletter

In the last issue, we discussed the Los Angeles City Council’s approval of a Citywide Hotel Worker Minimum Wage Ordinance, which required establishments with at least 300 guest rooms to raise their minimum wage to $15.37 by July 1, 2015. Those with 150-300 rooms have until July 1, 2016, to comply, and only hotels that demonstrate severe prospective financial hardships will be exempt.

In order to mitigate the impact of the increased wage, hotels should consider evaluating their operations to find ways to offset these costs. The following are some ways that establishments can take a sound and savvy approach to operational issues in order to keep their bottom lines intact:

Seasonal Work

Because certain times of year will be busier than others, hiring seasonal workers to meet demand makes good business sense.  Ramping up on staff during busy times of the year, such as the holidays and over the summer when hotels are often at capacity, will make it easier to scale back on employees later when occupancy rates plummet.

Part-Time Employees

Studies have suggested that the minimum wage hike could actually reduce part-time employment, as hotel management will likely seek to establish a core group of dedicated full-time employees to maximize value for wages paid.  This could be positive for hotels, as their employee turnover rate is likely to decrease.

Shift Differentials

Hotel employers are not required to pay shift differentials, but historically, providing additional compensation to those employees who work unpopular hours, particularly night shifts, has been shown to boost morale. However, in light of the minimum wage hike, employers may want to consider eliminating this practice. Further, employers should be mindful that employees who work permanent evening or night shifts that are paid differentials need to be paid vacation, sick and personal leave at an average of the employee’s regular rate and the differential rate.

Outsourcing

The practice of outsourcing off-site has become prevalent in the hotel industry. Laundry services, housekeeping, equipment maintenance, spa, valet, security, and information technology, are all commonly outsourced functions.  Hotels can reduce costs and liability, and even provide better service, by outsourcing.  However, hotel employers should be mindful of potential joint employer liability, especially in light of the National Labor Relations Board’s recent Browning-Ferris Industries of California (BFI) decision, that dramatically eased the criteria for a company to be considered a joint employer. Historically, the joint employer test focused on governance, wage and supervision decisions, and control. Under the new standard, a finding of joint employment is much broader, and only requires that a business exercise “indirect” (or potential) control over workers. Hence, under the new standard, a franchisor hotel may not only be held liable for its own labor violations, but for those of a franchisee entity as well. Analyzing joint employer criteria is paramount when making the decision to outsource.

Automation

Automation helps reduce hotel costs while improving overall efficiency.  Automated reservation systems, for example, provide hotels with cost effective processes for taking and confirming reservations while decreasing the margin of error. Other areas where automation benefits hotels include invoicing, distribution and Online Travel Agent (OTA) management. Further, these days automation software is extremely economical, making automation—even for the smallest of hotels—a no brainer. 

Amenities

Hotels should anticipate the needs of their guests, and adjust their amenities accordingly. For example, studies have shown hotel revenue from food sales has been steadily declining over the last decade. Hence, many hoteliers have opted to cut back on food and beverage offerings, including room service.  Instead, many hotels now offer grab and go breakfasts— such as a bagel, banana, and cup of coffee—particularly if the property caters to business travelers.  Assessing whether business centers, doormen and bellhops truly add value can also help hotels to pare down to essentials. 

Layoffs

Hoteliers considering layoffs need to examine every angle of their operations. The Federal WARN Act requires employers with 100 or more employees to provide at least 60 days’ notice when a “plant is closing” (i.e., business shutdown) or in times of “mass layoffs” during a 30-day period (and impacting 50-499 employees who constitute 33% of the workforce).  Layoffs of over 500 employees are covered, regardless of what percentage will be impacted.  California’s Warn Act has a broader scope, kicking in when a business employs 75 or more full-time or part-time workers. Further, in California, the percentage of the workforce impacted is irrelevant.  It is vital for employers to accurately track all layoffs, to ensure that WARN requirements are met.  Additionally, hotel owners should be cognizant of the potential for costly discrimination claims that frequently ensue from layoffs, often in the form of class action lawsuits.

This article is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.