LABOUR COSTS IN HOTELS

Is Reducing Staff Turnover More Important Than Reducing Labour Costs in Hotels

Is Reducing Staff Turnover More Important Than Reducing Labour Costs In Hotels?

An organization is as good as its people, and nobody can deny the fact that manpower is the greatest asset of a company. Moreover high attrition rates incur major costs to the company including recruiting expenses, training expenses, unemployment insurance and guest service of a quality less than one has been striving for.

Let's get to the crux. Employee turnover figure in the hospitality industry is a whopping 50%, enough to make employers lose sleep over the tangible and intangible costs of employee turnover. Turnover has an immediate effect, particularly in customer service-dependent areas of the business. A vacant position means more work for the remaining employees, without making a compromise on the customer service front. Little wonder then, that hospitality companies with low turnover rates report higher customer satisfaction and higher profits.

On the other hand as stated before, hotel managers tend to examine labour cost reduction opportunities when asked to reduce their hotel's operating expenses. An examination of movements in labour and all other expenses shows that payroll reductions contributed significantly to the cost controls implemented in both 1991 and 2001/2002. In 1991, hotel managers were able to cut their operating expenses by 1.9 percent while suffering from a 3.1 percent decline in total revenue. What is interesting to note is that labour costs fell 10.3 percent, thus indicating that all other operating expenses actually increased 7.3 percent. Therefore, if not for the cuts in labour costs, the declines in 1991 profitability would have been more severe.

During the recent recession, both labour costs and all other operating costs have been cut in both 2001 and 2002. During the two-year period, labour cost reductions have accounted for 64.6 percent of the total decline in operating expenses. Of note is that most of the reduction in labour costs occurred during 2001. It is apparent that the majority of cuts to fixed labour components (salaried positions, back-office personnel, etc…) were made immediately. Subsequent labour cost savings occurred, for the most part, because of the reduction in business volume and reduced hourly staffing requirements.

The 'always on' hospitality sector does not afford these kinds of figures pertaining to the turnover of employees. Consider the following points when planning for employee retention. Employers and employees share some common causes of employee turnover in Singapore.

Among demographic factors, the majority of Singaporeans hold the view that the young and more educated change jobs more often than the old and less educated. Labour shortage (or perceived alternative employment opportunities) and job-hopping among the uncontrollable factors stand out in the perceptions of most people as important factors causing turnover (Debrah, 1993; 1994). Further, most Singaporeans consider satisfaction with pay, a controllable factor, one of the most important causes of turnover intention (Debrah, 1994; Koh & Goh, 1995). We do not propose any hypotheses on implicit theories of employee ...