The impact of the autumn budget means a high proportion of pay awards will be lower than expected in 2025, according to a survey by Paydata.
The pay and reward analyst found that 60% of employers will offer pay awards lower than they had planned pre-budget next year, while 38% do not expect it to change.
According to Paydata, the median pay award for 2025 is now expected to be 3%, down from a pre-budget expectation of 3.5%, as employers react to higher national insurance contributions, an increase in the national living wage, and a lower threshold at which they have to pay national insurance.
The survey also found that two-thirds of employers are considering reducing their overall 2025 pay budget, 35% of employers are looking to reduce operational budgets, and 34% may absorb the additional costs by reducing their profits.
Just over a quarter (27%) expect to see their pay budget reduce by between 0.5% and 1%, while 15% expect it to reduce by up to 0.5%.
Tim Kellett, managing director, said that “affordability has taken priority over other influences such as low inflation”.
“However, there are also a range of other approaches being considered, including reducing operational budgets, increasing costs, and reducing headcount (sometimes through not replacing leavers),” he added.
Paydata also noted a number of sector-specific trends, such as construction and electricity companies accepting reduced profits to absorb rising wage costs, and housing associations opting to reduce internal budgets.
The company’s outlook for 2025 echoes that of Brightmine, which has also forecast a 3% median pay award for 2025.
A range of employers have reacted to budget announcements with uncertainty, with some sectors claiming the wage and NI rises will lead to job losses and closures.
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