Contract labor is now viewed as a necessary—but still costly—evil by many hoteliers, according to sources speaking at the Hotel Data Conference. But hotel companies can take some steps to mitigate the pain of that additional cost.
Speaking during the "Help wanted! Dealing with today and tomorrow's labor issues" panel, Amanda Chivers, managing principal of asset management firm Crown Hospitality Consulting, said contract labor is less than ideal but also unavoidable, especially at large, full-service properties and resorts.
"It's really creating more demand for contract labor," she said. "Look at resorts; 70% have to rely on contract labor. Imagine how that impacts your bottom line and profitability."
It's not just a profitability issue, either, Chivers said. A constantly rotating cast of employees can make it difficult to maintain service levels.
Chris Cheney, VP of hotel performance and analytics for Stonebridge Companies, also noted contract labor agencies often have lower standards for employees than hotels, so hoteliers must be clear on who they feel is eligible to work on-property.
"They're less stringent in vetting (employees), which is a scary area to be in because it only takes one Department of Labor ruling to tie us more closely to those employees," he said. "So we contractually say they have to be eligible associates and people who are legal to work at our properties."
Biran Patel, vice chairman of AAHOA and partner at BHP Investment Company, said the need for contract labor is equally acute at the low end of the spectrum in part because of the stigma of working at economy hotels.
"Where I live in Texas, with some economy hotels it's harder to find line-level employees because (full-service hotels) pay more with better benefits and these are exterior-corridor properties, but (employees) would rather work (inside)," Patel said.
But companies like Patel's are still better off paying the premium for labor during high-demand periods than giving up the ability to sell some rooms.
"While your revenue is doing well, you can't cut corners," he said.
Cheney said the cost and increased competition for contract labor is "a growing concern" for his company. He said the need for it at some properties has been reduced (or even eliminated) by making employees feel wanted.
"It hasn't been through recruiting as much as grassroot efforts, putting the time and energy into talking with individual candidates," he said.
He said success has been driven by providing "personal attention" to candidates.
"A lot of companies want to cast the broadest net, but where we find success is when a candidate walks through the door we don't want them to leave," Cheney said. "If they go down the street to retail or other industries, we'll never see them again."
One of the problems with contract labor's availability and cost, panelists said, is hotels aren't just competing with other hotels but with other large-scale employers like hospitals, and those businesses often have the benefits of being less seasonal.
To combat these issues, hoteliers need to find creative solutions. In addition to treating and paying employees well, Chivers said the resorts she works with cover food and housing for employees. She said those properties also rely heavily on family and friends referrals.
"That helps create an environment where it's comfortable and cohesive for new employees, and they come in already almost pre-trained," she said. "If their family is in the industry, then they already know about service culture."
Cheney said hotel companies can take simple steps to open themselves up to more potential candidates. He noted having an application process that requires an email address could eliminate as much as 75% of the pool of potential housekeepers.
"We all assume everyone has an email address, but research has shown that is not the case," he said.
He also noted his company has had some success recruiting J-1 visa workers, who are often students from other countries coming to the U.S. to work at large seasonal employers such as amusement parks. Partnering with their primary employer could give hotels a new pool of intelligent, eager employees.
"Most of those workers want to have a second job," he said. "They want to work the whole time they're here then take two weeks to travel and see the U.S. before they go home."
Patel said his company has made the strategic decision to not drug test employees, which could further scale back the potential pool of workers.
"If you're not bringing what you do at home to the workplace, then we don't make that an issue," he said.
Labor in a downturn
Labor costs are on the rise due to new minimum wage laws across the country, and profits might start to decline this year, which means it is time to start planning for a downturn, Joseph Rael, senior director of consulting and analytics at STR, said during the "Labor costs in a downturn" session at the recent Hotel Data Conference. STR is the parent company of HNN.
STR expects revenue-per-available-room growth of 1.6% for full-year 2019, which isn't significant growth, so Rael said labor costs are expected to continue to outpace growth in room revenue.
Minimum wage has risen to $13.25 an hour in some states, and has reached $15 or more in cities such as San Francisco and Los Angeles.
In 2018, labor costs outpaced revenue growth across all chain scales except for the luxury class, which was the only segment to see significant profit growth, Rael said. The midscale and economy segments saw profit declines as a result of labor growth of 6.7% for those segments.
In the past few years, labor costs have accelerated while revenues "have slowed to a point where they are no longer able to keep up," he said, adding that only nine of the top 25 U.S markets saw revenue outpace growth in labor costs in 2018.
Rising labor costs aren't necessarily a bad thing for all markets, he said.
"Minneapolis and Miami were the top two markets in the top 25 in terms of profit growth in 2018, right around 11%," he said. "So if you're seeing growth in revenues, you're seeing growth in occupancy and you're having to staff more, you're having people working more hours, then you're going to get that growth in labor costs as well."
By: Sean McCracken and Danielle Hess