Employers forecast pay rises of 2% in 2016

Private-sector employers are expecting to increase employees’ pay by just 2% during the next year, the same rate of increase seen over the past three years, according to research from XpertHR.

The XpertHR pay forecasts survey gathered data from more than 300 private-sector organisations. Among these, more than half the employee groups are expected to receive the same pay award in 2015/2016 as they did this year, with just a quarter of awards expected to be higher. More than one pay review in 10 is forecast to result in a pay freeze for employees.

Weighing heavily on the minds of employers is their ability to pay, with almost all organisations reporting this as a factor in their decision making. Labour market factors, most notably market rates, as well as recruitment and retention pressures, also feature, although when pressed on these issues employers largely reported that these would be addressed through one-off increases or payments.

XpertHR pay researcher Rachel Sharp said: “Instead of making higher pay awards across the board, employers are having to target their spend into areas where the labour market is tightest.

“Employees across the private sector are likely to be bitterly disappointed that their employers still don’t feel in a position to award higher pay rises than we’ve seen over the past few years.”

Inflation is also a key factor that employers will look at when setting the level of the next pay award, but in the current climate this is more likely to keep pay levels low. On the September 2015 figures, the consumer prices index stands at -0.1% and the retail prices index at 0.8%, both comfortably below both the current 2% pay award (for July-September 2015) and that forecast for the year ahead.

However, the current low inflation figures do mean that employees are experiencing real terms growth in pay – something that was unheard of for the five years between the end of 2009 and the end of 2014.

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Within the private sector, both manufacturing and services are predicting a median 2% pay award over the coming year. But some industrial sectors do stand out: employers in construction expect to make pay awards worth 3%; while utility suppliers are the least optimistic, expecting to award employees increases of less than 1%.

Public-sector organisations were excluded from the research, as they are covered by the Government’s policy of funding workforces for a pay award of 1% for four years from 2016/2017.