HR challenges for hospitality businesses

The day-to-day grind of owning or managing a business in the hospitality industry is stressful.  Adding HR related issues such as hiring, employee retention, scheduling, labor laws and more, on top of that can leave owners feeling overwhelmed.  Let’s take a look at the top HR challenges for hospitality businesses, and how they can manage these issues.

What are the top HR challenges for hospitality businesses?

We have complied a list of 5 of the top human resource related challenges that businesses in the hospitality industry are facing.  These include:

1. Hiring
2. Retaining Top Talent
3. Managing labor costs
4. Tipped employees
5. HR labor laws

Focusing on these 5 areas, and learning to navigate them, can have a positive impact both operationally and financially for your hospitality businesses.

Hiring

In today’s labor market, hiring is a challenge for all employers.  However, according to a studies, the hospitality industry has the third most job openings of all industries in the US.  This is a result of many factors including:

• Long work hours
• Lack of benefits
• Irregular schedule
• Variances in pay
• Stressful work conditions

Standing out from the pack is key to attracting applicants to your business.  Employers should consider things that are in their control, such as offering competitive pay and benefits, to offset other factors that are out of their control, like stressful work conditions.  Although not always possible in a restaurant environment, implementing flexible scheduling could provide a boost to your business.  This allows employees to work shifts that fit their scheduling and financial needs.  Reconfiguring certain hospitality job positions as remote or hybrid can also help attract additional candidates.  Finally, creating and promoting a strong work culture and high employee morale through word of mouth and social media goes a long way in positioning your business as one that job seekers will want to work for.

Retaining Top Talent

Once you have had more success in attracting and hiring employees, you must work on retaining your top performers.  The hospitality industry sees some of the highest turnover rates of all industries.  The same factors that affect hiring also have an impact on retention.  Many employers promise the world to potential applicants, but fail to follow up on those promises once the new employee is onboard.  Additionally, this industry attracts many low skilled or unqualified workers, resulting in employers having to end the employment relationship.

To combat this, employers first must be upfront and honest about their business and its’ processes up front.  Also, being selective when hiring can lower turnover rates.  Yes, being short-staffed is difficult and sometimes a body is a body.  However, hiring the wrong candidate and taking the time to train them only to have them leave ends up being more costly for your business.  Next, think about your best employees and their career goals.  Providing growth and advancement opportunities within your organization will help keep those star performers in your organization for longer.  Finally, incentivizing employees with monetary bonuses can increase employee morale and engagement.  Knowing why employees are staying at their jobs versus leaving is key to successful retainment.

Managing Labor Costs

Generally, labor is either the biggest, or second biggest, expense for hospitality businesses.  One key to managing labor costs is to carefully schedule to appropriate levels.  If your restaurant or hotel has too many workers scheduled at one period, send an employee home early or bring them in later.  Another key is to watch your timecard punches closely.  Have your managers double check punch in and out times each day and fix any errors as they occur.  Using a timekeeping software can help make this process simple.

A third way to keep labor in check is by monitoring any overtime your business pays.  Overtime must be paid to a non-exempt employee at 1.5 times their hourly rate for any hours worked over 40 in a given 7 day period.  If your business is paying out lots of overtime, think about switching your pay period to something other than Sunday to Saturday.  Would a Wednesday to Tuesday pay period work for your business?  It is much easier to send an employee home if they are approaching overtime on a Monday or Tuesday as opposed to a Friday or Saturday.  Overtime can be extremely costly and often a death sentence for many businesses.

Tipped Employees

Many hospitality businesses employ employees that regularly receive tips.  With tipped employees comes compliance issues.  Let’s take a look at a few challenges:

1. As with all other income, employers are responsible for withholding the portion of FICA taxes on tipped income. The FICA Tip Credit was enacted to ensure businesses with employees who receive tips report those tips as income to the government.  This is done by allowing businesses to claim a credit against its’ business taxes for FICA taxes paid on said tipped income.  Employers can pay tipped employees below minimum wage ($7.33 in Maine for 2025) when the employee is doing work that directly produces tips.   For example, a server waiting on a table is considered tipped related work as it directly produces tips for that employee. Tasks such as rolling silverware, portioning condiments, cleaning, waiting for customers to arrive are not considered tipped related work. Employees must receive the full minimum wage during these times.
2. Tip pooling can occur for all restaurant staff, including those who do not normally receive tips (cooks, dishwashers, etc), only if all members of staff are paid at least the full minimum wage. Employers can not use the tip credit in this case. Employers, managers, and supervisors are also not eligible to participate in the tip pooling.
3. Employers, managers, and supervisors are only allowed to retain the tips that they “solely and directly” earned by performing tipped related work.
4. Tipped employees must be paid overtime for any hours worked over 40 in any given 7 day period. The federal tip credit may also be used when tipped employees enter overtime.  For example:
   1. Maine 2025 Minimum Wage = $14.65 per hour
   2. Tipped Wage = $7.33 per hour
   3. Overtime wage: $14.65 x 1.5 = $21.98
   4. Less Tip Credit (minimum wage – tipped wage) = $7.33
   5. $21.98 – $7.33 = $14.65 per overtime hour for tipped employees.

HR Labor Laws

Just like other industries, hospitality businesses are subject to certain HR labor laws.  Challenges such as earned paid leave, retirement mandates, pay transparency laws, Paid Family Medical Leave, blended overtime and more are emerging trends in many states.  Knowing which apply to your business is key.  Make sure to have written policies in your company handbook on how you plan on managing these laws.

There can be a financial impact to your business with these laws as well.  For example, the Maine Earned Paid Leave law requires businesses to give employees at least 40 hours of paid leave per year.  Further, Maine businesses are required to pay out any unused, accrued vacation time to employees upon cessation of employment.  Maine businesses should be financially prepared to pay employees for time off, as well as be able to payout any vacation balances.  Knowing your obligations, and being prepared, is key to staying compliant and avoiding fines.

How should hospitality businesses proceed?

Knowing the challenges is the first step to successfully overcoming them.  Think about how your business is perceived to potential applicants and adjust where needed.  Consider offering more competitive wages and benefits to help attract candidates.  Look into outsourcing your payroll and HR needs to a vendor that can help you navigate labor challenges.  At Paper Trails, we provide a dedicated payroll and HR expert to work alongside your business.  Along with this expert, we provide endless compliance trainings and resources to help keep your business in line.  We work with many hospitality businesses and many members of our team have years of experience in this industry.  Contact us today for more information on how we can help your business.