UK pay rises “stagnated” in the third quarter of 2024, remaining at 4 percent, while forecasts for 2025 point to lower pay awards of 3 percent, data from Brightmine has shown.
Employers cited economic constraints, affordability, and recent government budget measures as key reasons for lower pay rise decisions expected next year.
The rises in employer national insurance contributions (NICs), from 13.8 percent to 15 percent on salaries over £5,000, plus the 6.7 percent national minimum wage hike to £12.21, have ramped up pressure on employers.
The minimum wage rise outpaces the anticipated 3 percent pay increases for next year, with 42 percent of businesses reporting that NMW increases will place upward pressure on pay awards next year.
Sheila Attwood, senior content manager, data and HR insights at Brightmine, said: “With business costs rising, organisations are having to review their pay and benefits strategies to create a competitive offering that doesn’t solely focus on pay.
“Managing workforce expectations will be critical in the coming year and employers should clearly communicate pay decisions to maintain employee engagement during times of financial restraint.
“Typically, this would involve sharing information about business performance and affordability to help employees understand the rationale behind pay award decisions. It is important that this information is shared early in the pay review process to manage employee expectations more effectively.”
The next 12 months will be a balancing act for employers striving to retain talent while managing budget pressures and new regulatory costs, she said.
The next 12 months will be a balancing act for employers striving to retain talent while managing budget pressures and new regulatory costs, she said.
Earlier this month, data from the CIPD’s Labour Market Outlook revealed that pay awards in the public sector have overtaken those in the private sector for the first time since Autumn 2020.
Previously, the public sector had the lowest median pay rises at 2.5 percent, this has changed in just three months and it now has the highest at 4 percent.
Even higher awards of 5 percent could be seen in the public sector in the next three months, the CIPD said.
