Close to half of UK employers (48 percent) have reported that budgets earmarked for salary increases in 2024 were lower than budget pots in 2023, according to a report from WTW.
The ‘Salary budget planning report’, from WTW shows that in 2023 UK salary budget increase rose 5.3 percent from 3.2 percent in 2022. However, budgets fell to 4.3 percent in 2024, with further reductions planned for 2025 as budget increases fall to 3.9 percent on average for employers.
This is still about budget levels for pay rises in 2020 and 2021, which were 2.2 percent and 2.4 percent respectively.
The budget figures show there were several years of higher salary increases after the pandemic, the ‘great resignation’ and high inflation. However, funding for pay rises is under renewed pressure as employers face rises in national insurance contributions in April 2025. WTW said companies are grappling with the transition to their ‘new normal’, added that despite lower budgets and a “conservative outlook for 2025”, salary increases are still at a healthy rate by historic standards. Total payroll expenses (which include salaries, bonuses, variable pay and benefit costs) continued to rise in 2024, with 82 percent of organisations reporting higher payroll expenses than in 2023.
Among the employers that are planning to reduce pay rise budgets, cost management (35 percent) and weaker financial results (31 percent) were the key reasons. Some employers are still planning to increase salary budgets and they cited inflationary pressures (44 percent) and tight labour markets (26 percent) as the main drivers for these decisions.
Overall, fewer organisations are struggling to attract and retain employees, with 35 percent of companies highlighting this as an issue, which is a drop of 8 percentage points over the last two years.
The report said that many organisations have already taken action to improve workplace culture given current market conditions. More than half (51 percent) have put a broader emphasis on diversity, equity and inclusion, while half have emphasised greater workplace flexibility (50 percent) and 49 percent pointed to action on improving the employee experience.
A third of employers said they plan to further improve the employee experience, while 28 percent are exploring increased training opportunities.
Paul Richards, Europe rewards data intelligence leader at WTW, said “After several years of higher salary budget increases, rates are starting to decline, as companies face a new set of challenges in place of the pandemic and ‘great resignation’.
“The market conditions of the past few years have prompted action from companies to review their culture, benefits and rewards and in turn ease attraction and retention issues.
“But as budgets become tighter in light of increased employer national insurance contributions, companies should continue to review their overall offering, placing emphasis on workplace culture, communication and benefits and rewards as a whole.”
