What will the National Living Wage mean for your golf club – and in particular your food and beverage operation? Steven Brown deals with typical concerns
Steven Brown is a food and beverage consultant to golf clubs. He is running a number of one-day bar and restaurant seminars for golf clubs’ key food and beverage operatives around the UK all of which are illustrated below. If you would like more details contact Steven on:
Email : herinn@aol.com
Telephone : 01604 843163
Planned course dates are as follows:
14th October – Surrey National
21st October – Brampton Heath, Northampton
29th October – Haggs Castle, Scotland
3rd November – Thorndon Park Golf Club, North East London
Unless you have been living the life of a hobbit buried deep in a hole, you will have been made aware of the chancellor’s announcement in July of this year to introduce the National Living Wage, which will be adopted in April 2016.
I welcome this move which will come as a relief to many workers in all industries who, for many years have struggled to survive on the minimum pay levels set by the governing bodies, but will it mean a slow, lingering death for some food and beverage businesses who are already struggling to keep control of their wage bills?
Flickr / Susanne Nilsson
Reaction to the introduction of this scheme has been mixed, with some organisations embracing the scheme and committing, even at this early stage, to paying the designated amount without any qualms. However the scheme attracted criticism from some sectors of industry such as supermarkets, farmers and my own food and drink sector, where it is suggested that such measures may reduce profits by up to 10 percent.
Wow! Golf clubs are part of the food and drink sector so what does this mean for you?
Can you afford to lose up to 10 percent of your profits from your bar and catering operations?
Does this mean that you would have to increase your retail prices by 10 percent or 20 percent to cover the increased cost?
Will you have to reduce the level of discount you give to members?
Will you be able to reduce the wholesale prices you pay for products to cover the cost?
Will you not employ staff over the age of 25?
Will your franchisee raise their prices to cover the cost of employing staff and thus affect sales?
So many questions but what will you do?
Before we investigate your options further, let’s just examine the facts and the fall out of the scheme as it applies to you.
The National Living Wage will be introduced in practical terms, in April 2016.
It affects all workers who have attainted their 25th birthday.
The rate of pay is set, at this date, at £7.20 per hour.
The scheme will be phased in between 2016 and 2020 when it is estimated that the National Living Wage will be £9.00 per hour.
The scheme is expected to affect approximately six million people.
The penalties for non-compliance are severe.
Any arrears will attract a maximum of 200 percent of the unpaid amount (although this amount will be halved if paid within 14 days).
The maximum penalty per under paid worker will be £20,000.
Disqualification from being a company director for up to 15 years can be applied by the courts if found guilty of a breach.
The creation of an HMRC non-compliance team to pursue criminal prosecution will follow.
It must be noted that it wasn’t all bad news as the chancellor announced plans to reduce corporation tax by two percent to help larger organisations deal with the increase on wages. Additionally, he announced a 50 percent increase in employment allowances which effectively means that a company could potentially employ four full-time people on the national minimum wage and not incur any national insurance costs. ‘They giveth with one hand and take it away with the other’. Governments eh! It seems it doesn’t matter who you vote the government always gets in!
Does this scheme affect all employers in the country? Yes and no! Smaller employees will have their National Insurance discounts increased to mitigate the higher costs of the National Living Wage, but that will exclude the big supermarket chains for instance who may, in an effort to ‘defeat’ the scheme, turn instead to recruiting more and more under 25 year olds and thus exempting themselves from having to pay the £7.20 rate.
Flickr / Larry
It is estimated that some 60,000 jobs will be lost because of the scheme.
If you think that this will impose an unnecessary strain on your already stretched resources, well of course it may, but a number of my golf club clients report that they are already paying their staff in excess of these amounts and indeed, some of them have accepted the ‘Living Wage Foundation’s’ recommendations of paying £9.15 for London and £7.85 for the rest of the UK – so, in the words of the great Joey Tribianni from the US hit comedy show Friends – ‘How you doin?’
What are your plans for the future? Will this scheme actually affect you massively or only in a minor way?
The majority of golf clubs and their food and beverage operations exist with a mixture of both full- and part-time members. Each of these sectors will, pro rata, be affected by the scheme, but I can imagine that the rates of pay allocated to the full-time employees will already be commensurate with the scheme, which leaves us to focus more especially on the part timers.
How many of you out there employ a team of casual workers for day-to-day bar or catering activities? How many of you employ an army of helpers for functions and events?
If they are over the age of 25 then you, and the business, will be affected by the new legislation.
So what are your options?
Employ under 25 year olds to cover such circumstances.
Don’t employ any more staff but ensure your full-time staff work twice as hard!
Carry on as before with the over 25s but pass the increased wage cost on to the hirer of the event or the even the members.
Carry on as before but simply absorb the cost and reduce your profits.
Tell the government to bog off and ignore the whole thing!
Well let’s begin by ditching the last suggestion as my prison visiting time for seeing golf club secretaries is already accounted for!
EMPLOY ONLY UNDER 25 YEAR OLDS
Many clubs already adopt this policy, albeit unwittingly perhaps, by filling in any gaps in their staffing rotas with the younger people out there who are themselves perhaps only seeking part-time or temporary employment or even investigating a career in food and beverage through work experience. I have no issue with this policy so long as you commit to training and mentoring these individuals to ensure that they deliver the level of expertise required and, if I am being completely honest, I do have concerns about this, not because they are not capable, but merely by dint of their age they will, by definition, be less experienced in their life and social skills than a more mature person who will have had more exposure to the challenges of life simply by being around for longer. Obviously this is not always the case as we have all met the 20 year olds who will break the mould and seemingly be ‘naturals’ in the role. The bottom line with this is, do you invest in experience and pay the full monty, or do you stick to the budget and pay under 25s the minimum wage?
EXPECT YOUR FULL-TIMERS TO WORK TWICE AS HARD?
I have no doubt that the more astute among you will already be reviewing this possible additional cost and wondering whether or not your existing staff could possibly contribute a little more, be more productive or even improve their efficiency thus reducing the need to employ additional staff.
My experience of visiting clubs to review staff performance absolutely confirms that this is undoubtedly true in many of the establishments I have been invited to. Of course there are members of staff who are dedicated to the cause and who give the club 20 hours work above and beyond the 40 hours expected of them, and they are a gift to us all, but I have encountered many situations over the years when the contribution made by senior members of staff has fallen short of what should be reasonably expected in the prevailing circumstances. Perhaps this newly enforced law offers you the perfect opportunity to review the roles played by senior or full-time staff to see if their contribution can be improved, thus negating the need for bringing in staff cover to those extra hours.
I fully accept that extra ‘hands’ are needed for functions, but again you have the option of employing an army of inexperienced helpers at a lower rate but with a large bill or, alternatively, investing in half that number of staff but at a higher rate who will deliver the standard and level of service you require, which brings me on nicely to the next point.
Flickr / Roman Harak
PASS ON THE ADDITIONAL COST ON TO THE HIRER
Obviously this relates in the main to function activity, although we must not exclude the members in all of this.
I have no doubt that the proprietary clubs among you will already have plans in place to pass any additional staffing costs incurred on to the event hirer (such as weddings, wakes and so on) and also across the bar at the pump prices to their customers.
Should members’ clubs view this any differently? In my view, no! Any failure on your part to recover these costs means added pressure on the food and beverage function and the club in general. If you are cash rich and can simply absorb this cost then I guess that’s fine, but as a commercial animal and with an eye on at least maintaining existing profit levels, I will always support any measure designed to help defray increased costs.
The worry for me is this.
I have, over the years, discovered that many of my clients do not charge a hirer for the cost of the extra staff they bring into service their event! How does that work then as, if this cost is not passed on, the club alone picks up that cost thus reducing the improved gross margin obtained in the first place for function catering to nothing more than an average bar sale net profit. In other words, any bottom line benefit that should have reasonably been expected, is lost!
My comment about passing on the new pay rates to users therefore will fall on deaf ears as these clubs are not even charging the client at the moment!
If you have already considered this and decided not to charge the client by increasing the cost per head but instead opted for charging a room hire fee to cover the cost of extra staff, then all is well with the world, but if you don’t, then why should you carry the cost – stick it on the bill and raise the price per head!
Should you put the prices up at the bar for members or customers or even reduce their discount levels?
Certainly you should consider the price increase. Your members will not be oblivious to the pending wage increases as they will, if employees themselves, be affected in their own businesses and they will undoubtedly be reviewing their own circumstances, so why shouldn’t the club? Of course your safety net is to blame the government like everyone else does and then consider your position!
Should you reduce the membership level of discount?
Regular readers know my views on discounts so don’t be too surprised when I suggest it as a possibility but it will very much depend on calculating:
a) The total cost of the increased wage bill and
b) The effect that any reduction in discounts would have on sales.
All I can say is it’s an option worthy of consideration.
One thing is for certain, this piece of legislation is not going to go away.
It may affect your club a little or a lot. It may have consequences on the level and standard of service you are able to afford to your members and guests.
No one can argue that the schemes are morally right in trying to defend those low paid workers who have the absolute right to a living wage but the key question for you is how will you handle this in preparation for April 2016 as a plan of action is needed now in order to be ready for the change.
The club’s responsibility is to calculate the cost and implications of this and then, dependent upon which line you decide to adopt, assess the risk and rewards of doing each. It won’t be an easy decision but please do remember this. Those of you that are charged with the responsibility for setting the wage percentage target at your club and that seek to achieve, say, 28 percent for a bar or 40 percent for a catering operation, that these percentage figures are guides not Gods! Yes they make sense as they are industry norms, but there may be totally defendable reasons as to why they may be legitimately exceeded and perhaps this act of parliament is a case in point.
Your new wage bill will mean an increase in the wage percentage (unless of course you increase VAT excluding sales) but don’t panic. You can reduce the impact of the act in the ways I have suggested but, so long as the overall wage bill is not massively increased, then the same level of service will be enjoyed by members, guests and customers alike which is, after all, just as important an aim as the bottom line. My point being, do not be driven alone by a percentage but by what is best for the club and its members and customers.
If therefore you decide not to increase your prices, reduce your membership discounts, increase your staffs’ productivity or you cannot negotiate a reduced wholesale price, you are going to experience a rise in your wage percentages but in this case it may well be justifiable.
I did have a client observe to me recently that, because of this new act, very soon it would be cheaper to give all their customers £10 and tell them to beggar off down the pub! And if that didn’t work, they might put the bar and catering out to franchise and let them worry about it.
Titter ye not! An interesting view, and perhaps tongue in cheek, but nice to know that there are brains out there devising ever more dastardly schemes to combat these changes.
The National Living Wage will certainly have an impact on the food and beverage industry, but it won’t be the death of it if we all respond to it in the right way and that begins by having a properly constructed game plan designed right now! The food and beverage operations in golf clubs will rise, phoenix-like from the ashes, and deal with this and other issues as we always do, but ensure your change over next April happens by design and not by accident and then we can all get on with making a living.
Steven Brown is a food and beverage consultant to golf clubs. His contact details are website: www.inn-formation.co.uk, email: herinn@aol.com, telephone: 01604 843163, mobile: 07785 276320