Hot tip: hospitality sector least likely to meet pay expectations in 2024

After a gruelling festive season marked by long hours and hectic service, hospitality workers won’t find much solace in the new year. New research finds that UK restaurants and cafes will struggle to pay their employees higher wages in 2024.

Startups surveyed a representative sample of 546 UK businesses towards the end of 2023. Almost one in five (19%) of firms said they would be unable to meet employee pay expectations this year, representing the most negative sentiment of any sector.

This widespread pessimism paints a worrying picture of the industry’s financial health and its ability to attract and retain talent.

The results come ahead of a new national minimum wage being introduced in April 2024. In light of Startups’ findings, the law change raises questions about whether firms will be able to absorb the hiked labour costs without having to take the nuclear option of raising prices.

Financial worries brewing in hospitality

Startups’ sector breakdown of the business outlook towards pay rises reveals that the broader landscape appears cautiously optimistic.

Technology companies, identified as the most optimistic sector, stand out in contrast to hospitality. 80% of science and technology organisations expressed a positive sentiment about surpassing employee pay expectations in 2024.

In comparison, just 59% of hospitality businesses reported that they felt either positive or very positive about their ability to increase pay this year, putting them at the bottom of the overall ranking.

Labour shortages have led many firms to become understaffed over the past few years, impacting productivity and contributing to a higher staff turnover rate.

As a result of the crisis, pubs, bars, and restaurants had taken to employing overseas workers to plug hiring gaps. But incoming changes to the UK’s visa system will make that more difficult in 2024, cutting off a key lifeline for the industry.

One quick-fix solution is to inflate salaries in order to pay a competitive rate and attract sought-after talent. Tech firms, facing their own skills shortage, have already taken this step. In the current economy, however, this is unaffordable for the industry.

Hospitality businesses, particularly restaurants and bars, are operating on razor-thin profit margins as energy bills and supply chain costs rise rapidly.

Minimum wage rise to hit hospitality hardest

Already balancing a precarious financial tightrope, cafes and restaurants also face a daunting new obstacle in the year ahead: the upcoming national minimum wage increase.

While a welcome boost for low-income workers across the nation, the hike could spell trouble for the hospitality industry, exacerbating existing concerns about employee pay.

Government data shows that retail and hospitality topped the list in terms of the number of minimum wage earners in the workforce for 2023. Likely, the impact of the updated NMW will be concentrated and potentially devastating for these sectors.

Based on the revised rates, a full-time 23-year-old employee working 37.5 hours per week will see their annual pre-tax pay jump by over £1,000, reaching around £22,308.

This seemingly modest figure translates to a significant percentage increase for businesses already teetering on the edge, potentially hitting cash flow and pushing many into the red.