Managing Hotel Labor Costs Today
Managing labor costs in a hotel operation is crucial to maintaining a profitable business while delivering the service level that is commensurate with the scale of hotel. Finding this balance has been especially difficult in a post-COVID-19 environment, when inflationary challenges coupled with labor supply shortages have put further pressures on hotel operations. Labor is one of the most significant expenses a hotel faces, accounting for 30–45% of total operating costs. Managing these costs takes creativity, innovation, organization, and diligence. Adjustments must be carefully considered because making too many staffing cuts can lower profitability and negatively affect the hotel's reputation and guest satisfaction. In the following article, we will describe some of the challenges surrounding labor management and explore innovative ways to manage these costs effectively.
Understanding Hotel Labor Costs
Unlike many other commercial real estate investments, hotel operating costs can vary substantially with occupancy rates, meaning that a certain portion of costs can be controlled with changes in occupancy. Occupancy levels can fluctuate by week, by season, or with economic changes. The higher a hotel's occupancy is, the more cost-management opportunities exist. During periods of lower demand, profitability is more difficult to maintain, and the expense that is most closely tied to a hotel's usage is labor.
Labor costs include wages paid to hourly employees, overtime costs, training expenses, payroll taxes, health insurance benefits, and bonuses. Once you have determined your fixed payroll and benefit costs, which typically comprise the management team and minimum non-management staffing levels, you need to identify your flexible labor costs. Successful management of this expense requires an understanding of daily usage patterns, labor dynamics, local laws, and technology.
The Right Number of Employees at the Right Time
Instead of maintaining a fixed number of employees, the most prudent hotel operators utilize a variety of tools to access and retain talent. Flexible staffing models allow hotel operators to adjust their workforce needs based on real-time occupancy data and demand forecasts.
One of the best and easiest ways to enhance workforce flexibility is to cross-train staff within a variety of departments. For example, front desk staff can assist in the restaurant or valet operation during slower periods, while maintenance staff can help the housekeeping team when the hotel sells out. I remember nights working as a hotel night auditor/front desk agent and folding laundry for the housekeeping department. Cross-training not only provides managers access to a wider in-house talent pool but also provides staff with transferrable skills across a variety of departments, which can lead to greater job satisfaction and even promotions for employees.
Another way to scale workforce needs in response to occupancy forecasts is by utilizing part-time and on-call staff. With fluctuating demand, hiring staff members on a part-time or on-call basis provides flexibility, adaptability, and specialized skillsets while reducing overhead by limiting the number of full-time employees and their associated costs, such as benefits. It is important to carefully investigate the pricing for on-call staffing solutions, as many types come at a significant cost. Nonetheless, depending on a hotel's specific needs, utilizing on-call staff may still be the most beneficial solution.
One of the most exciting recent innovations in hotel operations has been the implementation of scheduling technology. Scheduling software can help managers predict staffing needs more accurately based on information such as historical data analysis and real-time data integration. Artificial intelligence tools are now modeling labor demand forecasts according to factors like weather patterns, local events, and even traffic patterns. Shift optimization is helping to automate scheduling based on an employee's skills and experience, ensuring that the most qualified person completes each task. And finally, employee availability tracking allows staff to input shift availability and preferences, incorporating the staff members' own inclinations and considering their other obligations.
This technology has a strong return on investment; in addition to the scheduling model, it provides management with real-time productivity data, such as work-hours per occupied room for housekeeping. This feature assists managers with training, disciplinary, and reward opportunities to maximize the efficiency of their team.
Adopting Today's Advanced Technology and Tools
Integrating technology and robotics into the hotel management process might seem like the antithesis of 'hospitality.' However, it is essential to recognize that application of the right methods at the appropriate time can optimize outcomes. When executed with thought and care, technology integration can not only reduce costs, but it can also enhance guests' experience, saving them time and energy during some of the more cumbersome or frustrating aspects of a hotel stay.
Digital check-in and check-out processes, either through mobile apps or physical kiosks, can reduce the need for front desk staff, decrease wait times, and improve efficiency. Guests have the opportunity to communicate guestroom preferences, request additional services or supplies, and address other needs before even arriving at the hotel. This allows staff to focus on more meaningful, high-touch guest interactions.
It was not long ago that I regularly faced a line of guests patiently waiting to check in to the hotel where I worked, while I simultaneously fielded phone calls from prospective guests hoping to book a room for the night. Today, nearly all hotel bookings are done online. Enhancements in property management systems have automated the booking process and allowed guests to make reservations on the Internet. Gone (mostly) are the days of manual bookings, saving labor time and costs as well as enhancing the overall guest experience. Property management systems also maintain a plethora of data, including guest information, financial transactions, inventory tracking, and revenue management, which helps to reduce the overall administrative burden of the business.
Robotics is another potential innovative approach to managing labor costs; however, the upfront cost today is still quite high, making this an unrealistic option. Many anticipated advancements in technology and artificial intelligence will make the implementation of robots in the hotel space more affordable and practical in the near future.
Taking It Out-of-House—Streamlining Operations
Some components of labor-intensive hotel operations, such as laundry, valet parking, and/or landscaping services, can be far more cost effective if outsourced to a third party. This option is not necessarily always more cost effective, as much depends on the market and property type; however, it is an option that should be evaluated by hotel management. Careful consideration must also be given to the quality and reliability of the outsourced service, as disruptions or inconsistencies in quality can challenge the flow of existing operations.
Hiring a third-party consultant to conduct an operational audit is another way to gain insight into operational and, specifically, labor inefficiencies that are negatively affecting the hotel's profitability. By reviewing operational processes on a regular basis, operators can work to eliminate redundancy, assess workflow patterns, and manage staffing levels more precisely.
Similar assessments can be made in the maintenance, food and beverage, accounting, and marketing departments, ensuring that teams are working to the best of their abilities, with the right resources at hand and through processes that maximize outputs.
Keeping the Team Happy
One of the most overlooked and misunderstood aspects of labor management costs is employee satisfaction and retention. Numerous studies have shown that the cost to hire, onboard, and train new staff far outweighs the cost of retaining and rewarding existing team members. Recruiting and training is not only expensive, but it also takes time, which puts a strain on existing team members, the hotel's operations, and the overall guest experience.
There are several new and innovative ways hoteliers are responding to challenges in hiring and employee retention. From a recruitment perspective, management companies are offering flexible schedules, daily pay, free meals, subsidized housing and/or public transportation, and robust healthcare benefits. Other opportunities for employee engagement and satisfaction include family-friendly policies, such as childcare support and parental leave; team retreats; wellness programs; and mental health days. Providing career development opportunities through mentorship programs, training, or educational opportunities can be a significant incentive.
There are also many low-cost or free ways to create a sense of community and belonging at work, including recognition programs, themed workdays, social events, and cultural celebrations. Creating fun environment where employees look forward to coming to work is sometimes as important as other incentives. Furthermore, going beyond the typical hiring methods by developing partnerships with local colleges and universities or leaning on international visa opportunities can allow hoteliers to establish their property as a dynamic and exciting place to work, while prioritizing the profitability of the asset.
Persistent Challenges
There are certain assets and markets where labor cost management will remain difficult despite the implementation of the aforementioned solutions. Chronic labor shortages, collective bargaining agreements, regulatory laws, and high-wage markets are only a few of the challenges hoteliers may face that are harder to overcome via internal changes. Externalities such as economic downturns, which can affect hotel revenues, can also make it more difficult to maintain leaner costs while still providing competitive employee compensation packages. The complexity of hotel operations cannot be overstated; however, for nearly all hotels, the labor department presents the greatest area of opportunity for efficiency.
Conclusion
Prioritizing employee satisfaction and retention, incorporating technology and robotics, enhancing workflow processes and systems, and implementing flexible staffing solutions are some meaningful measures to creatively manage a hotel's labor costs. This holistic approach to labor-cost management, when implemented correctly and thoughtfully, ensures the viability of the operation from an investment perspective while enhancing the guest experience.
Reprinted from the Hotel Business Review with permission from HotelExecutive.com.
View source
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Hospitality Net
5 days ago
- Hospitality Net
Reviewpro Reputation Supercharges Its AI Responses Feature to Boost Hotel Efficiency and Personalization
BARCELONA, Spain – Shiji, the global hospitality technology leader is announcing a significant upgrade to Reviewpro Reputation's AI Responses feature, turning what was once a tedious task into an efficient, consistent experience. With a single click, hoteliers can generate context-aware response drafts aligned with tone preferences, property insights, and guest feedback so they can redirect valuable staff time toward meaningful guest service. The result: faster, more consistent engagement and elevated trust with prospective guests. Just one month into a trial, HM Hotels used AI responses to respond to over 82% of 661 reviews received, with a response time for negative and neutral reviews under 2.7 days, with a 100% response rate on key platforms like Google, and Tripadvisor. Responding to online reviews is a key driver of reputation performance, but operational pressure often leads to delays or inconsistency. Reviewpro Reputation's enhanced AI Responses feature tackles the root challenge: the blank response box. By automatically generating a polished draft, complete with acknowledgment of both praise and critique, hotels maintain a high standard of responsiveness. Clients define their tone (formal, friendly, empathetic, and the new 'Business Casual'), preferred length, and signature template, and the tool seamlessly integrates 'Property Insights' to ensure replies feel aligned with the brand's voice. AI Review Responses is not just about responding fast. It lets hotels to efficiently respond in a brand aligned voice and frees staff to focus on delivering remarkable guest experiences. The new bulk generation option takes efficiency to the next level. It allows teams to generate responses for multiple reviews at once. This helps staff save valuable time and maintain full control over the responses sent. Rafael Patiño, Senior Director of Product Management at Reviewpro Reputation Key upgrades: Tailored Tone & Structure: Users now choose from enhanced tone options—formal, friendly, empathetic, and the versatile 'Business Casual,' which blends professionalism with warmth and ensures proper pronoun use across languages. Users now choose from enhanced tone options—formal, friendly, empathetic, and the versatile 'Business Casual,' which blends professionalism with warmth and ensures proper pronoun use across languages. Workflow Visibility: The new 'AI Response Generated' icon and dedicated filters enable managers to track which reviews are draft‑ready and which are live, eliminating oversight and promoting accountability. The new 'AI Response Generated' icon and dedicated filters enable managers to track which reviews are draft‑ready and which are live, eliminating oversight and promoting accountability. Bulk Replies: One-click bulk response capability enables hoteliers to generate contextual replies for 20+ reviews simultaneously, ideal for busy teams or large properties. One-click bulk response capability enables hoteliers to generate contextual replies for 20+ reviews simultaneously, ideal for busy teams or large properties. Intentional Co‑Pilot Design: Hoteliers retain full editorial control, with every draft reviewable and editable before publishing. These enhancements arrive at a time when guest expectations are higher than ever. As travelers increasingly pay attention to how hotels respond to feedback, consistent and thoughtful replies have become a key differentiator. And since the average response time globally has dropped from 10 days in 2021 to just 3.2 days in 2025, hotels looking to stay competitive need to align with this new standard. To learn more about AI Responses, visit About Shiji Shiji is a global technology company dedicated to providing innovative solutions for the hospitality industry, ensuring seamless operations for hoteliers day and night. Built on the Shiji Platform—the only truly global hotel technology platform—Shiji's cloud -based portfolio includes Property Management System, Point-of-Sale, guest engagement, distribution, payments, and data intelligence solutions for over 91,000 hotels worldwide, including the largest chains. With more than 5,000 employees across the world, Shiji is a trusted partner for the world's leading hoteliers, delivering technology that works as continuously as the industry itself. That's why the best hotels run on Shiji—day and night. While its primary focus is on hospitality, Shiji also serves select customers in food service, retail, and entertainment in certain regions. For more information, visit View source
Hospitality Net
5 days ago
- Hospitality Net
Sasindu Don has been promoted Director of Finance at Sofitel Dubai Downtown
In the ever-evolving symphony of Sofitel Dubai Downtown, a new crescendo has been reached. With quiet determination and a mind sharpened by precision, Sasindu Don has journeyed from Financial Controller to Director of Finance, orchestrating success with the kind of clarity and calm that defines true leadership. Since joining the luxury property in the heart of Downtown Dubai 7 years past, Sasindu has been the silent force behind its financial finesse. Under his stewardship, the hotel has seen record-breaking gross operating profit, a streamlined procurement process that trimmed costs without compromising luxury, and the implementation of a real-time forecasting model that transformed the decision-making landscape across departments. But numbers alone don't capture Sasindu's legacy. A respected collaborator and mentor, he introduced dynamic reporting tools that empowered department heads with greater financial autonomy, building bridges between finance and operations in a way that felt both modern and human. His ability to balance bottom-line focus with top-tier guest experience made him not just a financial steward, but a true custodian of the brand's soul. In his new role, Sasindu will continue to chart the financial future of Sofitel Dubai Downtown, aligning commercial strategy with the hotel's audacious spirit and refined elegance. He will oversee forecasting, budgeting, compliance, and investment strategy, with an eye on long-term growth and resilience. With this new chapter, Sofitel Dubai Downtown reaffirms its belief in cultivating talent from within, honouring those who don't just manage luxury, but who live it.
Hospitality Net
13-06-2025
- Hospitality Net
Rebuilding hotel tech stacks for the Agentic AI era Philip Barton
A new kind of traveller is emerging, one who may never visit your website, click an ad, or speak to a human. Instead, they rely on their personal AI agent to plan, compare, negotiate, and book every aspect of their trip. This shift marks a seismic change in how travel is discovered and transacted, demanding a fundamental rethink of hotel technology stacks. Are hoteliers ready for this new class of guests and their digital representatives? Consider how AI-driven website traffic is already having a dramatic impact: According to Ahrefs, 63% of websites receive AI traffic , with smaller sites experiencing the highest proportion. , with smaller sites experiencing the highest proportion. A survey by Adobe reveals that traffic from generative AI sources (chatbots or AI-powered search assistants) on U.S. travel websites rose 1,700% from Jul 2024 to Feb same survey shows that visitors arriving via generative AI tools show 8% higher engagement, view 12% more pages, and have a 23% lower bounce rate than non-AI traffic sources. reveals that traffic from generative AI sources (chatbots or AI-powered search assistants) on U.S. travel websites rose 1,700% from Jul 2024 to Feb same survey shows that visitors arriving via generative AI tools show 8% higher engagement, view 12% more pages, and have a 23% lower bounce rate than non-AI traffic sources. Cloudflare found that monthly traffic to generative AI services grew by 251%between February 2024 and March 2025. So, what does this all mean for the hospitality industry? Most hospitality tech stacks weren't built for AI; they were designed for humans, not machines. Legacy systems are slow, fragmented, and incapable of speaking the language of autonomous AI. To stay visible and bookable in an AI-agent-first ecosystem, hotels must rethink their infrastructure from the data layer up, embracing real-time interoperability, AI-native protocols, and machine-readable data formats. Is your data AI-ready? The rise of AI agents demands a fundamental shift in how hotels manage and present their data. Traditional website designs optimised for visual appeal and manual navigation are insufficient for engaging with AI-driven tools. Hotels must evaluate their systems against the following criteria: Structured data formats: Implement markup to make room availability, pricing, and amenities accessible to AI crawlers. Implement markup to make room availability, pricing, and amenities accessible to AI crawlers. Real-time accessibility: Ensure APIs deliver fast, accurate responses to queries from AI agents, with latency ideally under 100ms and definitely under 200ms. The 95th percentile for API response times should always be under 3 seconds. Ensure APIs deliver fast, accurate responses to queries from AI agents, with latency ideally under 100ms and definitely under 200ms. The 95th percentile for API response times should always be under 3 seconds. Interoperability: Adopt protocols like Model Context Protocol (MCP) to enable seamless interaction between hotel systems and external AI platforms. Adopt protocols like Model Context Protocol (MCP) to enable seamless interaction between hotel systems and external AI platforms. Dynamic content updates: Automate inventory and pricing updates to reflect real-time changes, ensuring AI agents always access the latest information. Hotels that fail to meet these standards risk becoming invisible to AI agents, which prioritise systems capable of delivering clean, actionable data. By preparing their data for this new user class, hoteliers can ensure they remain competitive in an increasingly automated travel ecosystem. Building the foundation: A focused, AI-ready architecture Modern hospitality stacks begin with unified data ecosystems that aggregate guest profiles, operational metrics, and market signals into cloud-based repositories. This eliminates silos between PMS, CRM, and revenue management systems, creating a single source of truth. Unifying data overlaid with semantic meaning is the prerequisite for AI innovation, enabling real-time analysis of guest preferences, occupancy trends, and competitive pricing. With clean data pipelines, hotels can deploy AI co-pilots that: Adjust room rates dynamically using market demand signals Predict guest preferences (room, meal selection, room settings, etc) Handle customer inquiries through conversational AI Optimise housekeeping routes and inventory orders. These systems learn continuously, improving efficiency and personalisation over time. Agentic integration: MCP and the rise of the A2A Economy The emergence of AI agents opens a new paradigm for hotels: active participation in the agentic economy. Hotels can no longer passively rely on traditional distribution channels. To thrive, they must embrace strategies that enable seamless interaction with AI agents, creating new avenues for booking, personalisation, and revenue generation. This starts with understanding and implementing key protocols such as the Model Context Protocol (MCP), which paves the way for the Agent-to-Agent (A2A) economy. MCP is a new and evolving protocol that transforms hotels into active participants in the A2A economy. It standardises how AI agents interface with hotel systems, expanding the capabilities of individual agents by enabling them to connect and interact with other specialised agents, leading to richer and more versatile functionalities. This benefits hotels as it allows their systems to: Offer more comprehensive travel solutions : By connecting with external AI agents, hotels can offer bundled packages that include flights, transportation, and local experiences, all coordinated seamlessly. : By connecting with external AI agents, hotels can offer bundled packages that include flights, transportation, and local experiences, all coordinated seamlessly. Reach a wider audience : Integration with diverse AI travel platforms expands the hotel's reach beyond traditional channels, tapping into new customer segments. : Integration with diverse AI travel platforms expands the hotel's reach beyond traditional channels, tapping into new customer segments. Improve efficiency and reduce costs: Automating interactions with AI agents minimises the need for human intervention in routine tasks, freeing up staff to focus on higher-value activities. MCP is a rapidly evolving landscape that can potentially eliminate fragile API integrations, allowing properties to connect with numerous services through a single MCP gateway. Imagine a guest's travel agent AI seamlessly booking rooms, spa services, and dinner reservations by interfacing directly with your hotel's agent. Optimising the agent experience 8Traditionally, websites have focused on the user experience (UX). However, the rise of AI demands a focus on the agent experience (AX) that must consider a different set of technical priorities: AI-accessible inventory: Expose rooms, amenities, and add-ons through GraphQL APIs and enable multi-property package bookings in a single transaction. Expose rooms, amenities, and add-ons through GraphQL APIs and enable multi-property package bookings in a single transaction. Machine-readable content: Replace visual call to actions (CTAs) with annotations, reconsider SEO in the context of how LLMs view your brand visibility, and implement tags for preferential crawling. Replace visual call to actions (CTAs) with annotations, reconsider SEO in the context of how LLMs view your brand visibility, and implement tags for preferential crawling. Agent Experience (AX) design: Develop parallel website versions optimized for API interactions. Semantic consistency and support for multiple data sources, including social and query graphs, are all key. Develop parallel website versions optimized for API interactions. Semantic consistency and support for multiple data sources, including social and query graphs, are all key. Dynamic commission structures: Create lower AI-specific affiliate tiers and offer bulk booking discounts for high-intent agent queries. Transitioning from legacy systems to seize the AI opportunity The transition to an agent-mediated hospitality landscape is not a distant possibility but an accelerating reality. Hotels that delay implementing MCP capabilities and an agent-friendly infrastructure risk significant market share erosion within 12-18 months as AI travel planning becomes mainstream. Forward-thinking properties are already capturing early-adopter advantages through strategic partnerships with emerging AI travel platforms. The challenge now is how quickly hoteliers can transform their digital infrastructure to become preferred partners in the A2A economy, where AI agents will increasingly mediate guest relationships. The journey to an AI-first architecture means hotels must adopt a modern technology stack by: Phasing out on-premise systems with cloud-native platforms offering open API access. Adopting composable data and platform architecture using microservices for easy MCP integration. Considering website SEO and agentic presentation pathways. Retraining staff on AI-assisted workflows, reducing manual data entry. Revamped stacks for the Agentic AI era will drive operational efficiency and real-time channel optimisation by automatically redistributing inventory across the most profitable channels and guest profiles. First-mover hoteliers will help shape the new distribution paradigm and have greater control over their digital destiny in the age of AI.
