Prepared for: Ministry of Business, Innovation and Employment
Date: Monday, 19 o Whiringa-ā-nuku | October 2020
Restaurant Association of New Zealand feedback
What effects have you observed as a result of changes to the minimum wage? (You may wish to comment on the April 2020 increase, and/or increases over the past 5 years)
Before the COVID-19 pandemic, the hospitality industry was growing: we employed more than 133,000 people, over 18,000 restaurants and food outlets, generating annual sales in excess of $11 billion. But of course, this has all changed.
The impact of COVID-19 on hospitality is most appropriately described as both catastrophic and devastating, with many operators remarking the minimum wage increase during the pandemic was the emotional breaking point.
The Government’s COVID-19 Alert Level system meant 98% of our member businesses had no ability to generate any revenue at Alert Level 4, and while contactless pick up and delivery at Alert Level 3 provided some relief, there were few in our industry set up to thrive in the Level 3-type environment.
We raised our concerns around the impending minimum wage increase with Hon Iain Lees-Galloway in a meeting at our head office in early March and were dismayed the Government chose to move ahead with the increase at a time when there was zero revenue coming into nearly all hospitality businesses across the country. One Member noted it was “ironic that when we have no turnover the government expects us to still pay 80% of wages, when their payment was not even the minimum wage.”
At the height of the COVID-19 lockdown, 57 per cent of our Members were considering, or needing to restructure and a fifth of our Members were considering closing their business permanently. Based on our membership, this equates to just under 500 Member businesses, affecting around 10,000 workers.
There is still much work to be done to help hospitality recover: we need to see pragmatic solutions progressed by the Government to nurse New Zealand’s services economy back to health. We saw 84 redundancies and five business closures within our membership in the month of September alone, and expect this number to continue to grow in the coming months. It would be incongruous to add additional costs on to businesses at a time when many of them are struggling to survive.
What positive effects are likely to result from increases in the minimum wage rates, for both employers and workers? Is the current COVID-19 environment likely to change these effects?
The majority of our Member businesses (75%) are small to medium enterprises (SMEs) meaning that as well as being the employer, the owners are also the marketing department, sales department, the HR department, the creative director, the quality control officer, but to name a few. This means that many hospitality employers are inside the business on a day to day basis alongside their workers. Longer tenure employees tend not to be on minimum wage, as owner/operators want to show their workers the value of their contribution to the business. Higher wages often means higher morale and reduced staff turnover.
Where minimum wages are used, they tend to be for entry level roles such as kitchen hands, Apprentice/ Commis chefs or entry level service staff, or where the employee has no prior experience in hospitality and is not looking for long term employment.
What negative effects might be caused by an increase in the minimum wage rates, for both employers and workers? Is the current COVID-19 environment likely to change these effects?
The makeup of our small hospitality businesses are generally Mum & Pop businesses and/or long-term hospitality operators who have been in the sector for decades. This means they are familiar with operating businesses with tight profit margins. Profit margins during periods of economic growth tend to sit at around 3% – 5%. This means, any increase in employee costs means those with tight budgets will look to lay off employees to remain solvent. Some employees could make more, but others have to seek additional employment or benefit support.
While some companies can pass on the cost of increased wages to consumers in the form of price increases, this tends not to be an option available in hospitality as consumers are very price sensitive: a $5.00 cup of coffee that goes up by 20% becomes $6.00, which by anyones standards is a notable increase.
The Government has published an indicative rate of $20 for the adult minimum wage from 2021. What effects do you anticipate if this indicative rate becomes the adult minimum wage?
The Association submits that this will put a further squeeze on businesses within the hospitality sector at a time when we should be focused on supporting businesses that have weathered an extremely challenging year.
Are there other changes the Government could make alongside an increase to the minimum wage that would be helpful in the current environment?
An absolute priority for the hospitality sector is improving the education and training landscape of hospitality in New Zealand. Our sector is in desperate need of trained people with skills relevant to hospitality: this will command better employment outcomes for workers if their training is properly matched to the industry. While we currently have reasonable access to people who can take on entry level roles, in many cases Members are struggling to fill roles that require more experience. Our aim is to work closer with the Government to grow and support long-term career opportunities within the sector.
The Association is involved with a number of different training programs for the industry both at different levels from entry level to business owner.
Are there any other issues you would like to raise in relation to changes to the minimum wage rates?
While none of us know exactly how COVID-19 will ultimately shakedown in the long term, it is fair
to say hospitality is in crisis: hundreds of jobs have already been wiped out from our sector, and thousands remain at risk: families’ livelihoods will be the collateral damage of ongoing decision making being made without robust sector engagement.
As an Association, we have a significant role to play to guide the hospitality industry through this continuing period of uncertainty, however we need the government to work with us transparently and collaboratively on decisions that have direct impact on business bottom lines, such as minimum wage rates.
We wish to reiterate it was extremely disappointing to see an increase in the minimum wage during the pandemic, while other aspects of Alert Level rule compliance thrust new costs on the sector. The reason for this is that for hospitality businesses to operate safely and in line with Alert Level guidance, they had to adhere to single server requirements and single use items – which all increased costs. At Alert Level 2, hospitality businesses reported an average 20% increase in staff costs alone.
We have not yet seen the full fall out of COVID-19 in our sector. Our priority continues to be to help as many hospitality businesses in New Zealand survive. Piling on additional costs and compliance hurdles at this juncture will not help. We would be happy to survey our 2500+ Members on minimum wage suggestions for MBIE in the coming months if that would be of interest.
About this paper: This paper has been compiled by the Restaurant Association of New Zealand for the Ministry of Business, Innovation and Employment’s Minimum wage review 2020. The information reflected in the paper has not been directly tested with Restaurant Association members, rather is a compilation of feedback garnered over the past few years. It does not necessarily reflect all members’ views.