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Money Mandates May Kill Profitability

Potential changes to employee/employer mandates such as minimum wage and the definition of a full time employees has the potential to upend industry financial health.

Monday, June 30, 2014
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Are you getting political?

We hope so. Because if you’re not getting involved in political activism regarding the interests of the hotel business, you risk disruptive political mandates that will affect your bottom line. So say industry experts concerned about some potboiler issues taking shape on Capitol Hill.

Their overriding concern is that potential new legislation would create a situation that could stifle profitability while also putting jobs at risk. One area of concern regards the definition of a full time employee, while the other deals with the minimum wage.

As is commonly understood full time employees work a required 40 hour plus work week. Now some entities in the U.S. government want to change that definition to 30 hours. Conventional wisdom in political circles is that by lowering hours worked to reach the fulltime threshold, more people will become full time employees, thereby helping the economy.

While that sounds well and good the law of unintended consequences would kick in, say industry experts, and therefore create a jobs killing scenario whereby hotel owners who cannot afford to pay benefits to a new crop of full time employees, such as rapidly rising health care costs, would see their hours slashed to below 30 a week.

“A number of people will lose jobs or will be shifted from full to part time. It will be devastating if it goes that far. All you have to do is the math,” said Eva Ferguson, President, IHG Owners Association, which represents the interests of thousands of InterContinental Hotels Group owners and operators worldwide, monitors important governmental issues on behalf of its members and is proactive to protect the lodging industry.

Kerry Ranson, President, Expotel Hospitality Services and Chairman-Elect, IHG Owners Association, said the only way many hotel owners will be able to stay in business is by changing the way business is done. “The sad part is as owners we have to take a long hard look. This is detrimental to Middle America. This will force smaller hotels into completely flipping their business model,” said Ranson.

Many midscale properties are only profitable because they are designed to be run with a specific number of full time employees and part time employee. Change that formula and then costs shoot up cornering owners into making tough choices to keep the hotel from falling into the red.

The other big issue is the so called Living Wage initiative that would push minimum wage over the $10 threshold, an amount hoteliers says will suck the breath out of the economy.

That’s because according to a report by the nonpartisan Congressional Budget Office in mid-February, increasing the federal minimum wage to $10.10 would cost 500,000 jobs by 2016. The last federal minimum wage hike, in 2007, resulted in 550,000 fewer part time jobs.

The industry says that minimum wage jobs are meant to create a pathway of entry into a career where people have the potential to move up quickly to higher paid jobs with more responsibility. In fact, many of the CEOs running hotel brands, management companies and ownership groups started as bellboy front desk clerks and dishwashers.
“I made my way through waiting tables to manage a restaurant to then becoming a general manager to working for a brand and then owning my own company. We can escalate someone's career and do it quickly,” said Ranson.

Jonathan Tisch, co-chairman of the Board and Office of the President of Loews Corporation said a job in the travel industry serves as a gateway to the great American middle class.

“The travel industry is one of the 10 largest employers of middle class wage-earners in the U.S. – ranking higher than finance and real estate. Nearly half of all travel industry employees – a total of more than 3.7 million Americans – earn middle-class wages – more than double the number in the information sector. And two out of five workers who start in the travel industry go on to earn more than $100,000 per year,” said Tisch during a speech at the NYU International Hospitality Industry Investment Conference.
Tisch argued the hotel and travel industry is part of a broader transformation of the economy away from agriculture and manufacturing and is now a service economy, where travel is one of its most critical components.

“Right now, the travel industry is a top 10 employer in 48 states, while 1 in 8 American private sector jobs is linked to the travel industry.

Tisch called for hoteliers to share the truth with their members of Congress.” I read a report the other day that said a single Boeing 747 carrying 467 international visitors to the U.S. brings the spending power to support 14 American jobs. Understanding the importance of those jobs, recognizing the benefit of those jobs to the American people changes minds and changes votes. It turns government into a partner for growth, instead of a barrier to growth. “
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