Minimum wage puts hotels in trouble

Most of them have reason to be. Hardly any industry in Germany is affected by state intervention in the wage structure as massively as hotels, restaurants and pubs. The Dehoga gastronomy association found out in a survey: More than half of the entrepreneurs expect an increase in personnel costs of more than 15 percent. A further 27.2 percent of the companies expect an additional burden of 10 to 15 percent on staff.

Hotel consultants like Michael Lidl consider this to be disastrous. Lidl, managing director of Treugast in Munich, predicts that the total costs of the hostels will rise by six to eight percent. “In the past, the average profit margins were just that high,” he says. “If hotels don’t manage to raise prices accordingly, they will have a powerful problem.”

But the project could become a tour de force. After the corona pandemic, the demand for overnight stays is only slowly returning. Leonardo’s houses, for example, are still reporting short-time work because there is a lack of congresses.

Necessary price increases become a problem

In particular, the demand from business travelers remains weak in the accommodation industry. While last week 21.6 percent of Dehoga members reported that private bookings were currently going “poorly to very poorly”, there were more than twice as many in the business sector at 46.4 percent.

The impression seems by no means only subjective. For example, German hotel and catering sales in April were still 17 percent below the pre-crisis level of April 2019. In March, they were even 27.5 percent below the value of three years ago.

In view of such vacancies, it is naturally difficult for providers to raise prices – especially since framework agreements with companies cannot be changed at short notice. “The massive increase in the minimum wage is a quick action, for which the hotels are only given seven months,” criticizes Treugast’s managing director, Lidl.

Many hoteliers therefore seem taken by surprise. “We are trying to compensate for the cost increases through greater digitization, for example at check-in,” reports Anke Maas, Head of Human Resources at the Leonardo hotel chain, about the first countermeasures. Whether that will be enough is uncertain. The six houses around Frankfurt alone, she says, would have additional monthly costs of 50,000 euros as a result of the tariff increases.

The competitor Premier Inn, which recently opened its 40th hotel in Germany, wants to save on overhead costs. And probably also in the marketing campaigns. “Our brand is still under construction in Germany,” says HR manager Natalie Busch, who speaks of a “big challenge” when it comes to the minimum wage. “Price increases for the guests are therefore not possible, nor is there a reduction in staff in the houses.”

The state has asked the accommodation providers to pay heavily in recent years. According to the Dehoga survey, personnel costs have increased in almost three quarters of companies since the introduction of the minimum wage. In 2015, Berlin intervened directly in collective bargaining autonomy for the first time and set a minimum wage at 8.50 euros.

The industry is particularly badly affected because chambermaids, laundry workers or kitchen help are often hired as unskilled workers and earn correspondingly little. At the same time, the industry works like no other with an enormous personnel cost ratio.

A comparison of operating costs showed that fast-food restaurants and bed and breakfasts alone transfer a quarter of their expenses to the workforce, while hotels with extensive congress events and banquets easily have a personnel cost ratio of 40 percent.

Wage increases in anticipatory obedience

There is probably another reason why there are hardly any managers in the hotel industry who are publicly complaining about the drastically increased minimum wage: the most recent wage agreements have already anticipated the increase almost nationwide. In the North Rhine-Westphalian hotel and catering industry, for example, the Dehoga regional association agreed on January 19th with the Food-Genuss-Gaststätten Union (NGG) to increase the starting wage to EUR 12.50 per hour on May 1st, 2022 – a leap of 28 percent up.

So that the wage structure does not falter, specialists in North Rhine-Westphalian kitchens, in service or in hotel management now also receive 17 percent more. In 2023, wages will rise again by 3.5 percent. “That helps enormously in retaining staff and recruiting new employees,” said Mohamed Boudih, state chairman of the NGG NRW, comforting the battered employer side.

In Bavaria, too, Dehoga gave in at the beginning of March. “In the lowest tariff group, an hourly wage of 12.00 euros was agreed with regard to the expected minimum wage from April 1, 2022,” the employers officially announced there. This will also be increased to EUR 12.60 in several stages by April 1, 2023.

Previously, NGG in the state of Berlin had traded the lowest tariff level up to twelve euros per hour. In Rhineland-Palatinate, a few days before Christmas, the following was said: “Consistently, the base wage will be increased by more than a third in the new wage agreement. In the future, the entry-level groups of the new pay scale will always be above the statutory minimum wage.”

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The collective agreements are declared generally binding in hardly any federal state, so that from a purely legal point of view they only bind members of the employers’ associations. In fact, non-members of Dehoga can hardly escape the agreements without having to fear that their workforce will leave. “85 percent of German hoteliers are based on the standard wage,” says Leonardo manager Anke Maas. In many places even more is paid.

Additional pressure comes from the Financial Control Office for Illicit Work (FKS), a customs unit that cracks down on violations of the minimum wage law. In the worst case, the investigators punish violations with a fine of 500,000 euros.

Lockdowns are having an impact on the hotel industry

The massive increase in the minimum wage hit the industry at the worst possible time. “During the lockdown, many companies accumulated loans that first have to be repaid,” warns Dehoga general manager Ingrid Hartges to the Handelsblatt about excessive burdens.

Large companies are more likely to be affected than the medium-sized competition. While small individual hoteliers were often reimbursed for 95 percent of their losses by the state, the Federal Ministry of Economics capped the Corona aid at an upper limit of 54.5 million euros. The group companies were therefore only compensated for 30 to 45 percent of their damage, criticizes Dorint supervisory board chairman Dirk Iserlohe. “It must not come to this,” he wrote to Economics Minister Robert Habeck last week, “that the livelihoods of more than 30,000 employees of the large medium-sized hotel companies are endangered.”

In addition, there is a clear investment backlog in the accommodation sector because many companies made savings during the corona pandemic. Energy has become drastically more expensive, as has grocery shopping, reports Dehoga boss Hartges. “It is worrying if the minimum wage is now also causing wage pressure in higher wage groups.”

Despite all the criticism, industry expert Lidl also sees something positive about the minimum wage. “For decades, the hotel industry has not managed to offer an attractive wage structure,” he says, referring to the lack of skilled workers in this industry, which everyone complained about. “The minimum wage may have changed that.”

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