Key Employment Challenges Facing UK Hospitality Employers in 2026

Hospitality remains one of the UK’s biggest employing sectors, but over the last few years the industry has been balancing tight margins. Customers have been tightening their belts whilst the UK remains in a cost-of-living crisis, and of course the sector is still recovering from the implications of Covid-19, which brought with it mandatory periods of closure. When hospitality did open back up, it was subjected to various conditions (remember only being permitted to order a drink in a pub with a meal?).

This has all happened whilst employment costs continued to rise due to the likes of wage inflation and National Insurance changes, and energy bills sky rocketed, alongside operational pressures such as skills shortages and high staff turnover.

The hospitality industry has traditionally relied on part time, zero-hours, irregular-hours, and agency staff, which all present compliance issues for employers, including holiday pay calculations and tipping rules, where a small technical error can quickly become an HMRC issue, a tribunal claim, or a reputational problem. With the introduction of the changes to legislation, the sector is now looking to face additional challenges.

 This guide sets out the key employment challenges for UK hospitality employers in 2026, and the practical steps you can take to reduce risk, stabilise staffing and protect service delivery.

1) High staff turnover

In the UK, turnover of staff in hospitality was recorded at 52% in CIPD’s 2024 analysis, which sits well above many other sectors. The impact of high turnover is not just the recruitment spend; it is also results in:

• Increased cost of onboarding and training staff
• Greater reliance on recruitment agencies and an increase in associated fees
• Risk of inconsistency in service
• Health and safety risks
• Reduced team morale

What employers can do:

• Recruit for fit, not just availability: Determine what good performance looks like for your business and build an interview and selection process that focuses on reliability, customer service and teamwork.
• Make rotas fair and predictable: Best practice is to publish schedules as early as possible and if possible, offer staff the opportunity to work regular hours to allow them to organise their own time and be fair about allocating shifts.
• Consider the total reward offer: Small benefits or gestures can go a long way in hospitality – consider free meals on shift if working over a number of hours, gym discounts, local partner discounts, recognition schemes. These arrangements can cost very little but can go a long way.
• Invest in development: Having a clear progression pathway and the availability of training opportunities not only makes staff feel valued but also invested in the company.
• Act on exit feedback: Conduct exit surveys and review patterns of reasons for departure provided in the exit interviews (are they leaving because of the manager, role, shifts?) to allow you to improve the employee experience.

2) Rising employment costs

There have been significant national minimum wage and National Insurance increases. It is common for employers to see a “ripple effect” as experienced or senior staff also expect pay to be increased when National Minimum Wage (‘NMW’) rates rise.

What employers can do:

• Review pay structures, not just minimum wage rates: Decide which roles or individuals will be entitled to an enhanced rate and document the rationale so pay decisions can be explained to avoid allegations of unfairness.
• Communicate early and clearly: Explain progression routes and how performance influences pay/ bonuses/incentives to avoid disengagement of staff.

3) Zero-hours and casual contracts

Zero-hours and casual contracts can be a legitimate way to match staffing to peaks and troughs in the business—particularly where workers also want flexibility (for example, students or people with caring responsibilities). However, a contract being described as “casual”, does not necessarily decide legal status; what matters is the reality of the working relationship.

For example, long-standing, regular patterns of work can create employee rights no matter what the title of their contract may be, for example – “casual worker”.

What employers can do:

• Use flexibility for genuine variability: Avoid relying on zero-hours arrangements to run the core business where hours are, in reality, regular and ongoing.
• Check status before ending engagements: Where someone has worked regular hours over a long period, reconsider their status before assuming you can remove shifts or let them go with little risk.
• Prepare for reform: Planned changes in legislation are looking to introduce rights to guaranteed hours, to provide more notice of shifts and compensation for late cancellation of arranged shifts, although specific guidance in relation to these proposals has not yet been released.

Zero-hours contracts are also penned to go through major changes under the Employment Rights Act 2025. Whilst changes aren’t due to come into force until 2027, there’s plenty employers should be doing now to prepare. Read our guide on 2027 changes to zero-hours contracts for more information.

4) Live-in accommodation

Live-in arrangements for staff can be a huge selling point, but employers must be aware of two risks:-

• Creating unintended tenancy rights instead of a licence to occupy, and
• Unlawful deductions that push pay below national minimum wage when accommodation charges are handled incorrectly.

Therefore, best practice is to:-

• Put the arrangement in writing with a properly drafted occupancy agreement: Where relevant, document that occupation is linked to employment, set out any house rules and notice provisions and be clear on what happens in the event of termination.
• Keep accommodation charges under review: Charging above the permitted accommodation offset can bring pay below NMW and trigger back-pay and penalties so ensure to keep the rates under review.

5) Compliance trips and slips

There are a few areas which tend to cause employers in the hospitality industry trouble:

Tipping, gratuity and service charge rules

With the Employment (Allocation of Tips) Act 2023 having introduced mandatory requirements around the fair and transparent handling of tips, gratuities and service charges:

• Have a written tips policy: Ensure it is compliant with the Employment (Allocation of Tips) Act 2023 act, set out how tips are collected, allocated and paid, and keep it accessible to staff (including agency workers where relevant).
• Pay tips on time and keep records: It is important you can evidence what was received and when it was distributed.
• Train managers: Inconsistent local practices across sites are a common trigger for complaints. If you have multiple sites, best practice is to have a consistent policy.

Holiday pay for irregular-hours and part-year staff

Holiday pay errors can be common in hospitality, particularly for staff with irregular hours. Calculations often need to reflect average pay over a reference period and include elements such as regular overtime and certain contractual payments.

• Audit your holiday pay method: Review the current rules for irregular-hours/part-year workers to ensure you are using the correct reference weeks.
• Include the right pay elements: Ensure payroll captures regular overtime and other payments that should be included.
• Fix issues prospectively and manage back-pay risk: Take advice where historic underpayments may exist.

National Minimum Wage breach hotspots

Hospitality employers should ensure that certain costs and arrangements do not inadvertently take employees’ pay below NMW.

Common risk areas include:

• Accommodation charges: Deductions can reduce pay below NMW if not handled within the accommodation offset rules.
• Uniform and equipment costs: Requiring workers to buy specific items can create unlawful reductions to NMW pay.
• Salary sacrifice arrangements: Certain arrangements can affect NMW calculations if implemented incorrectly.
• Unpaid working time: Mandatory training, preparation time and opening or closing duties are considered as working time and should be paid without fail. Employers treating this time as unpaid can unintentionally reduce employees’ pay below NMW.

6) Skills shortages and overseas recruitment

Many hospitality businesses report persistent vacancies for skilled roles. Where employers look to recruit from abroad, sponsor licensing and right-to-work compliance can become business-critical, and immigration rules can tighten with limited notice.

• Plan your workforce in advance: Identify roles that are hard to fill and build a pipeline (apprenticeships, local colleges, referrals).
• Treat sponsorship compliance like a core process: Employers sponsoring workers should run periodic internal audits to ensure that you are compliant re: records, role changes, absences, reporting duties.

Action checklist for hospitality employers

1. Run a minimum wage audit focusing on accommodation, uniform requirements, training time and any deductions or salary sacrifice.
2. Review live-in accommodation documentation to avoid creating tenancies and to ensure charges are compliant.
3. Check holiday pay calculations for irregular-hours/part-year staff and confirm the right pay elements are included.
4. Ensure you have a written tips policy, operational record keeping, and a consistent allocation process.
5. Sick pay has now become a day one right – therefore policies should be updated and payroll staff advised of this change.
6. Assess where zero- and low-hours arrangements are being used and whether patterns of work suggest a move to contracted hours would reduce risk.
7. Expect that the changes in legislation will be encouraging employers to provide predictable hours, more notice of shifts and compensation for late cancellations. Strengthen rota planning and change control (lead times, approvals, documentation) to prepare for more predictability-focused rules.
8. Build a retention plan covering rota fairness, development, progression pathways and targeted benefits.

In summary, hospitality is a high-compliance-risk sector, and the most cost-effective approach is usually prevention—therefore a focus on processes, clear documentation and early advice will likely pay dividends for the employer and provide a more supportive environment for the employee.

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