Impact of employee turnover on profitability in the Austrian hospitality industry

Austria’s hospitality industry is characterised by small family businesses with strong regional and traditional ties, creating authentic, unique tourism experiences.

4,3 % of all 11,000 hotel properties (330,000 hotel rooms) are operated by international and domestic hotel groups. The hotel chains are mainly located in Vienna, operating around 120 hotels.

In 2023, around 311,000 full-time workers were employed in the sector, representing around 7,6 % of the total workforce in Austria.

However, the hospitality industry worldwide faces significant challenges, such as labour shortages and high employee turnover rates, which affect not only productivity and performance but also profitability and service quality.

This paper examines the primary reasons for employee turnover in the hospitality industry and their impact on an establishment’s profitability. First, it examines the primary reasons employees choose to leave their jobs. Secondly, it highlights the impact of employee turnover on an organization’s profitability. Finally, it proposes strategies employers can implement to reduce turnover rates. This article draws on two interviews with industry experts, Ines Spiessberger, Area Director of Human Resources at Park Hyatt, and Anna Ferrari, Director of People and Culture at SO/Vienna.

Reasons employees choose to leave their employment

Unlike many other industries, the hospitality sector experiences exceptionally high employee turnover worldwide, with reported rates ranging from 70% to 80%. Researchers worldwide have studied the causes of high employee turnover, and the results have been diverse yet consistent.

In her literature review, “Causes and prevention of high employee turnover within the hospitality industry,” Nombeko Felicity Dwesini classified employee turnover into 3 different categories:

1. “Voluntary and involuntary” turnover,
2. “Functional and dysfunctional” turnover
3. “Avoidable and unavoidable” turnover

She defined voluntary turnover as employee-initiated departure from an organization, whereas involuntary turnover occurs when the employer ends the employment relationship and the employee leaves against their will.

Functional turnover refers to situations in which an employee’s departure benefits the employer, while dysfunctional turnover describes situations in which the organization is disadvantaged by the loss of an employee.

Avoidable turnover occurs when an employee’s departure could have been prevented through retention strategies such as improved engagement or remuneration, whereas unavoidable turnover results from personal life decisions, such as relocating to join a partner, that the employer cannot influence.

The reasons employees choose to leave an organization are diverse and differ not only from country to country but also from establishment to establishment. The hospitality industry in Austria, especially in Vienna, heavily relies on migrant workers to fill labour shortages and increase the stability of the industry’s labour market. In Vienna alone, more than 70% of all waiters and barkeepers (13,000 people in actual numbers) have a migration background. As a result, one of the main reasons employees leave their employment at Park Hyatt or SO/ Vienna is the expiration of their work permit, which forces them to return to their home country.

Further recurring reasons for employees to depart from their positions at Park Hyatt Vienna include professional reorientation and health-related issues, especially prevalent in operational departments due to the labour-intensive and physically demanding nature of these positions.

On a global level, one of the main reasons employees leave their jobs is low job satisfaction, which is often attributed to several factors. To develop a deeper understanding of the causes of job dissatisfaction, the causes have been classified into the following: occupational demands, work environment, and rewards.

Occupational demands refer to the long working hours mixed with shift work, making it difficult for employees to maintain a healthy work-life balance.

Additionally, most operational positions in hotels, such as housekeeping, cooking, and waiting, are physically demanding and involve periods of high stress on a regular basis.

Secondly, the overall working environment strongly contributes to job satisfaction. Literature has shown that managers have a strong influence on the work environment and employee retention. However, research has demonstrated that managers continue to regard employees as easily replaceable resources. This results in employees experiencing reduced job security and increased performance-related stress. Even though front-office employees (client-facing employees) are often the key factor in success, they are neither considered nor rewarded accordingly. Furthermore, employees reported limited involvement in decision-making and very reduced creativity in their job descriptions. However, this is characteristic of luxury, higher-priced, and upper-segment hotels, where adherence to strict standard operating procedures is necessary to ensure consistent service across all properties worldwide.

Park Hyatt Vienna and the SO/Vienna foster a safe, supportive work environment, which is essential to increasing employee satisfaction and reducing turnover. At both hotels, annual and semi-annual anonymous surveys are conducted across all departments to monitor employee satisfaction. These surveys give staff the opportunity to voice concerns and highlight potential issues in a confidential and constructive way. Based on the survey results, action plans are developed to address these issues.

Furthermore, it is a common phenomenon in the hospitality industry that employees perceive their remuneration as unfair compared to the high workload. This is a common reason why employees leave their positions or their companies.

Lastly, a major reason why employees leave their jobs is the lack of career development or promotion opportunities within the company.

Overall, making employees feel appreciated and providing opportunities for personal and professional growth, as well as promotional opportunities within the company, have proven to be highly effective retention strategies and drivers of a business’s market value and profitability.

The combination of a positive work environment and sustained relationships with former employees have proven to be a key success factor for Park Hyatt Vienna in reducing employee turnover and facilitating the reemployment of staff who temporarily left to work at other hotels. Staying in touch with former employees helps the hotel to encourage talented staff to return. Additionally, as part of a global brand with more than 1,500 properties, Hyatt benefits from a broad network that supports connections with current and former employees, and valuable recommendations.

The impact of employee turnover on organizational profitability

Fostering a positive work environment not only affects an establishment’s productivity and performance, but research also shows that satisfied employees convey their positive emotions to guests, improving service quality and client satisfaction. This can lead to better ratings of the establishment, a higher rate of return guests (guest loyalty), improved brand image, and an increased guest spending (revenue/turnover per client), contributing to enhanced profitability for the establishment.

Furthermore, the departure of an employee and finding a suitable replacement are generating important additional financial and human resources: exit interviews, severance pay, recruitment costs connected to writing a job description and publishing it, costs of selecting the right candidate, and hiring them, and the loss of productivity.

Many of those costs are not quantifiable, and therefore, the financial impact is difficult to define. Kohl and Partner GmbH estimated the costs associated with losing an employee and refilling the position in Austria to be between €7,500 and €10,000, depending on the position, required professional skills, and the local labour market. In their calculation, they considered 2 categories of “exit costs”:

1. Cost associated with lost productivity when colleagues take on additional work;
2. “opportunity costs related to the employee’s departure,” since work performance often decreases both before and after the decision to leave.

Opportunity costs at the time of entry arise as additional expenses, as productivity remains lower during the training period, and managers and mentors must invest extra time in recruitment and introduction. At SO/Vienna, it takes approximately two to four months for a new employee (depending on the position) to become fully familiar with their role and to work independently. During this period, overall efficiency decreases, which, in turn, results in higher operational costs.

Finally, recruitment costs contribute to the overall financial burden, including job advertisement expenses, applicant information materials, and potential travel costs.

Retention strategies

While other industries have started introducing flexible working-hour models, such as four-day workweeks or remote work, the hospitality industry continues to rely on rigid working-hour frameworks to save labour related costs. While introducing remote work for operational positions in hotels is impossible, it is possible to adapt shift work. Stepping away from the conventional 40-hour workweek and introducing flexible work models has proven to be an effective employee retention strategy. While adapting flexible schedules forced Park Hyatt Vienna to increase staff from 180 to 220, leading to higher personnel costs, the approach remains worthwhile due to improved retention and long-term operational stability.

Providing fair compensation, performance bonuses, and training that promotes professional development has emerged as an effective approach to lowering employee turnover. Additionally, although studies indicate that many companies and managers recognize employees as their most valuable asset for achieving business success, relatively few employers strategically implement retention measures. Acknowledging outstanding employee performance and rewarding said performance makes employees feel appreciated and increases their commitment to the company, reducing turnover.
Furthermore, providing standard operating procedure training for new employees and other skill-building initiatives, such as cross-training in different departments, to enhance professional and personal development, have been identified as key factors to employee satisfaction. High-rate hotels tend to invest more into employee training to ensure consistent high-quality service for their guests, while lower segment hotels, with different financial resources, might need to find alternative ways to provide employee training.

Conclusion

The hospitality industry worldwide experiences significantly higher employee turnover rates than many other sectors. Key drivers of this trend include demanding working conditions, particularly in operational roles, limited internal career advancement, perceived insufficient remuneration, and generally low job satisfaction. High turnover adversely affects service consistency and quality, organizational productivity, and overall profitability. Newly hired employees require time to adapt to operational standards, often resulting in temporary performance reductions. Additionally, the financial burden of turnover is considerable, encompassing separation and exit costs, recruitment and selection expenses, and productivity losses during the onboarding phase.

Implementing well-structured HR strategies to enhance retention can substantially reduce turnover. Measures such as fair and transparent remuneration systems, opportunities for professional growth through departmental cross-training, and cultivating a supportive and positive work environment help strengthen employee commitment. When employees feel engaged and valued, they are less likely to leave their roles and make the hotel more reputable. Moreover, satisfied employees tend to convey their positive attitudes to guests, which can enhance the customer experience, contributing to higher overall profitability.

About the Author:
Paulina Loose is a Bachelor student at EHL Hospitality Business School (École hôtelière de Lausanne) in Switzerland. During her six-month internship at Horwath HTL Austria, she had the opportunity to conduct in-depth research and author a paper examining the impact of employee turnover on the profitability of hotel properties. Her academic and professional interests lie in the broader fields of ESG, sustainability, and fair labour practices within the hospitality industry. Paulina aspires to build a career focused on promoting responsible business practices and long-term value creation after completing her studies at EHL.

For this paper Paulina conducted two interviews with industry experts Ines Spiessberger, Area Director of Human Resources at Park Hyatt, and Anna Ferrari, Director of People and Culture at SO/Vienna.

Ines Spiessberger has been working for Park Hyatt in Vienna for over seven years. She started as Cluster Director of Human Resources and is now Area Director of Human Resources for Austria, Italy, the Czech Republic and the Ukraine.

Anna Ferrari has worked for the SO/ Vienna for the past two years and is now Director of People and Culture.

Their expertise in the field provided valuable insights that shaped the research for this paper.