A third of UK employers plan to reduce pay rises in 2025 as a result of increased employment costs announced in last year’s budget.
According to Towers Watson’s National Insurance Pulse Survey, conducted during the first half of February 2025, the salary budget fell by around 1% for those who reduced salary increases this year.
In April, employers’ national insurance contributions will rise to 15%, and the threshold at which they are paid will reduce to £5,000 from £9,100.
Industry bodies have already claimed the tax hikes will mean companies will struggle to recruit, while some have indicated they may have to reduce headcount to cope with the increased costs.
After the reduction, planned salary increases are likely to be 3%, Towers Watson said.
Businesses will also be looking to make additional HR changes to offset the rises, it added.
The survey found that 41% will increase scrutiny around hiring and 28% will make cuts to headcount. Eight per cent said they would implement a hiring freeze.
Other changes include reviewing pension salary sacrifices and reducing non-salary budget rewards, the survey revealed.
Lindsey Clayfield, senior director for work and rewards at Towers Watson said: “We were starting to see salary budget increases moving down towards pre-pandemic levels, and the change to the employer national insurance contributions has accelerated this.
“Employers will need to be smart about how they allocate the salary budget increases, ensuring key and high-performing talent is being rewarded effectively.
“Equally, reviewing benefit offerings and non-monetary rewards can help support employee needs, particularly for those that might be affected by below-inflation salary increases.”
Towers Watson’s findings echo the most recent pay award analysis from Brightmine, which found that the median annual basic pay rise in the three months to January was 3%.
According to the British Retail Consortium, part-time roles could be most at risk of the upcoming tax hikes.
It argues that the new threshold of £5,000 for employer NICs will make it more difficult and expensive to hire part-time workers and predicts that one in 10 part-time retail roles could be lost as a result.
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