As a result, a third of UK employers intend to cut pay increases in 2025. This is due to the increased costs of employment announced in the budget of last year.
Towers Watson’s National Insurance Pulse Survey conducted in the first half February 2025 shows that the salary budget for those who have reduced their salary increases has fallen by about 1%.
In April, the employer’s national insurance contribution will increase to 15% and the threshold for payment will be reduced to PS5,000, from PS9100.
Some companies have said they will have to reduce their headcount in order to deal with the higher costs.
Towers Watson stated that after the reduction in salary, it is likely to be around 3%.
It added that businesses will be looking at additional HR changes to counter the increases.
According to the survey, 41% of respondents will be more careful in their hiring decisions and 28% plan to reduce headcount. Eight percent said they’d implement a hiring ban.
The survey also revealed that other changes would include reviewing salary sacrifices for pensions and reducing budget rewards not related to salaries.
Lindsey Clayfield is the senior director of work and rewards for Towers Watson. She said that the salary budgets were beginning to move towards the pre-pandemic level. The change in employer national insurance contributions accelerated this.
Employers will have to allocate salary budget increases in a smart way, so that key performers are rewarded appropriately.
The same goes for reviewing non-monetary benefits and benefit offerings. This can support employee needs, especially those who may be affected by salary increases below inflation.
Towers Watson’s findings are in line with the latest pay awards analysis by Brightmine which found that median annual basic salary increases for the three-month period ending January were 3%.
The British Retail Consortium has stated that part-time jobs could be the most vulnerable to tax increases.
It argues that employers will find it harder to hire part-time employees due to the new employer NIC threshold of PS5,000. They predict that 1 in 10 retail part-time roles may be lost.
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