Labor cost is a major expense item throughout all operated and undistributed departments within a hotel. Not surprisingly, the labor-intensive rooms and food and beverage departments have the highest labor cost ratios.
In 2013, labor costs represented 61.1 percent of total expenses in the rooms department and 59.6 percent in the food and beverage department. At the other end of the spectrum, labor costs are less pervasive in the administrative and general (48.8 percent) and maintenance (51.5 percent) departments.
As revenues continue to grow for most U.S. hotels, the combined cost of salaries, wages, bonuses, and payroll-related expenditures has declined as a percent of total hotel revenue. In 2013, labor costs represented 32.3 percent of total revenue, down from a high of 34.8 percent in 2009 but still above the long-run average of 31.2 percent. Labor costs measured as a percent of total revenue run from a high of roughly 35 percent at convention and resort hotels to a low of 22 percent at limited-service and extended-stay properties.
Strong growth in revenue, however, has the potential to mask the struggles hotel managers face to control labor costs. Therefore, it is important to also measure movements in labor costs relative to changes in other hotel operating expenses. While labor cost as a percent of revenue has declined significantly in recent years, labor cost measured as a percent of total expenses has remained relatively constant.
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