The Impact of Increased Salary Thresholds on the UK Hospitality Industry

21.05.2024 Author: Dan Akhtar

The recent increase in the salary thresholds for skilled worker visas has marked a significant shift in the landscape of UK employment, particularly for the hospitality industry. As of April 4, 2024, the minimum salary threshold for a Skilled Worker visa application has risen to the higher rate of £38,700. While the previous threshold of £26,200 had already profoundly impacted the hospitality sector, this increase is now being felt across even more hospitality departments and indeed most business sectors. 

Hospitality Industry 
The hospitality industry has long relied on international workers to fill a variety of roles, from restaurant managers and chefs to housekeeping and front-of-house employees. While the thresholds do not apply to those who are already settled in the UK, they will present a considerable challenge, particularly for small businesses and those located outside of London and the south east, where salaries are typically lower. 

The trade body UKHospitality estimates that 95% of sponsored visas for chef and manager roles granted in 2022 would not meet the new salary requirements. The dramatic increase poses a substantial burden on employers, many of whom are already grappling with challenges in retention and recruitment alongside ongoing economic uncertainties. 

The increased thresholds are consequently deterring skilled workers from considering roles in the UK, pushing employers to compete for a smaller pool of domestic workers or to raise salaries, which simply may not be feasible for many establishments.  

Impact on Small Businesses
Small businesses, which form the backbone of the hospitality industry, are disproportionately affected. These businesses, without the support of a global hospitality brand, often operate on very thin margins and will struggle to meet the new salary requirements. For a local pub or a family-run restaurant, the prospect of raising a manager’s salary by 50% is daunting. With the increased minimum wage, costs of energy and business rates continuing to drive up costs, and leading to higher prices for consumers, we are more likely to see reductions in employees, or even closures, further straining the sector. 

Broader Economic Implications
The increase in salary thresholds is part of a broader strategy to reduce net migration following record numbers in the previous year. While this policy may achieve its goal of reducing overall immigration, there is a risk of creating immediate labour shortages in sectors that traditionally rely on skilled workers from abroad, such as hospitality, technology, and healthcare. However, we are also beginning to see the implications that this policy may have on the longer-term future of London as a global financial hub. KPMG recently announced that they had cancelled job offers for a new intake of foreign graduates as the starting salaries were lower than the new threshold. While the “Big Four” firm will have more flexibility to find solutions than small hospitality businesses, it will be interesting to see how this affects the long-term pipeline of attracting the best and brightest graduates. 

Potential Solutions and Adaptations
We would recommend that all employers in the hospitality industry review the new salary thresholds and identify the roles that meet the relevant minimum salary levels. This will help when planning their people strategy giving you more time to plan for the longer term. However, beyond this, the industry will need to continue finding innovative solutions to mitigate the impact of these changes. 

Upskilling and Training 
One potential solution is to invest in upskilling and training domestic workers to fill the roles traditionally occupied by international talent. This strategy requires significant investment in training programs, apprenticeship schemes and partnerships with educational institutions to ensure a steady pipeline of skilled workers. 

Workplace Culture and Employee Benefits
To attract and retain talent, employers will need to nurture their workplace culture. Primarily, this means understanding and communicating with your people, but may also require enhancing employee benefits and working conditions. This could include offering flexible working hours, career development opportunities, and other non-salary benefits that make roles more attractive to domestic workers. 

Technological Innovation
Technological innovation will play a role in mitigating employee shortages and has the potential to completely reimagine how we do business. Automation and digital tools can streamline operations and reduce the reliance on human labour for certain tasks, allowing them to concentrate on value-adding guest experiences. However, businesses need to ensure that these innovations work well for their customers or risk damaging the guest experience and brand image.  

Rethinking Business Models
Some businesses may need to rethink their business models and/or people strategy entirely. This could involve focusing on smaller, more manageable operations that require fewer staff or exploring alternative revenue streams. 

In conclusion, the decision to increase the salary thresholds for skilled worker visas represent a significant challenge, but not just for the hospitality industry. With little prospect of the decision being reversed (the shadow government have broadly supported the increase), this is something that all businesses will need to consider in their long-term people strategy. They will need to explore innovative solutions to attract and retain talent, invest in training and upskilling domestic workers, and potentially rethink their business models to adapt to a decreased workforce.  

If you would like to discuss about how this policy might affect your people strategy and explore some options that might help support your business through the change, then please get in touch.  

Dan Akhtar, Managing Director – HPG Advisory Services 
+44 208 600 1166 / +44 7808 157796 

Guy Lean, Managing Director – Madison Mayfair 
+44 20 8 600 1180 / +44 7813 009787  

Chris Denison Smith, Managing Director – FM Recruitment 
+44 20 8600 1160 / +44 7775 711923   

Andrea Shaw, Director – FM Recruitment 
+44 20 8 600 1160 / +44 7714 236469