UK employers are expected to continue reducing their salary budgets next year, new research from WTW has found.
According to the data, organisations’ budgets for increasing wages dropped for nearly one in two (48%), with 4.3% being the average budget awarded in 2024, while planned increases are expected to be 3.9% on average in 2025.
The global advisory, broking, and solutions company’s latest Salary Budget Planning Report indicated that employers which had implemented big pay rises post-pandemic and following the Great Resignation and high inflation could now be facing pressures because of changes to their national insurance contributions announced in the government’s recent budget.
However, while recent budget increases have fallen from the 5.3% peak reached in 2023, WTW highlighted that they are still higher than in 2020, 2021 and 2022, when they averaged 2.2% 2.4% and 3.2% respectively.
Pay budgets
Budget costs lead to lower 2025 pay awards
Less than a third to award above-inflation pay rises in 2024
It found total payroll expenses – including salaries, bonuses, variable pay and benefit costs – continued to increase this year, with more than four in five (82%) of employers reporting a rise from in spend from 2023.
Organisations that planned to reduce salary rise budgets said the main reasons cited were cost management (35%) and weaker financial results (31%). Inflationary pressures (44%) and tight labour markets (26%) were the key drivers for those increasing their budgets.
The report also revealed that fewer companies were finding it difficult to attract and retain talent, with 35% identifying it as a problem compared with 43% two years ago.
In terms of workplace culture, many organisations have already taken action to improve this in response to current market conditions, with around half (51%) putting more emphasis on diversity, equity and inclusion, and a similar proportion on greater workplace flexibility and improving the employee experience (50% and 49% respectively).
A third (33%) of those polled also plan to make further improvements to the employee experience, while 28% intend to boost training opportunities.
Paul Richards, Europe rewards data intelligence leader at WTW, said: “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.”
The research further found employers are responding to flexible working needs, with four in five of those that offer such arrangements having hybrid or remote working models. More than two in five (43%) of organisations with remote options also do not require employees to work in the office for a specific number of days.
Two in five (41%) of employers that have changed or are planning to change their compensation programmes or workplace flexibility have mostly recruited people higher in the salary bracket, while nearly two in five (37%) have carried out a full compensation review across the workforce.
Commenting on the findings, Gaby Joyner, head of employee experience, Europe at WTW, believes there has been a shift in employee expectations, with greater value being placed on flexibility, personalisation of benefits and communication around pay and broader total rewards.
She said: “As pay transparency regulations come into force, employers need to focus on offering clear and consistent communication around pay levels and pay decisions, while continuing to develop the broader employee experience, to ensure new attraction and retention issues don’t arise.”
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