The sharp increase in cost of living over the previous years has continued to affect individuals and businesses. In light of this, companies may find it difficult to budget for salaries in 2025. The UK-based consultancy 3R Strategy, which specializes in pay and rewards, has released its 4th Global Salary Planning Report to provide companies with a useful resource for budgeting salaries next year.
The report, based on responses from organisations across more than 20 industries in over 40 countries, examines salary budgets for 2024, forecasts for 2020, as well as data on pay transparency and communication, performance-related compensation, the use and reporting of gender pay gaps.
Pay Budgets and Forecasts for 2025
Most organisations will set their pay budgets to 5% in 2022 when UK inflation is expected to reach 8.6%. The median budget for pay increases remained the same in 2022, when inflation fell to 6.3%. The inflation rate in September 2024 was 1.7%, the lowest for over three years. However, the median budget for pay increases in 2024 is 4% and 2025 projected at 3.5%. This suggests that UK workers will see their wages rise faster than inflation rates for the first since the pandemic.
The report analyzes the data by industry and country, highlighting key differences in sectors. The UK financial services sector, with a 5% budget, has the largest pay budget for the next year. This is due to the fierce competition for talent, and the need for technical expertise. The charity sector and the media and arts sector report the lowest increase at 2% each.
In the Autumn Budget the government announced an increase in the National Living Wage of 6.7% starting April 2025. This is higher than the budgets planned for that year. This will have to be factored into the planning of organisations, since a budget of 3.5% does not mean everyone will receive a pay rise of 3.5%. Entry-level jobs that are paid the National Living Wage require a 6.7% increase. In the budget, employers’ National Insurance Contributions will also increase from 13.8% up to 15%. This will have an impact on pay budgets. However, it remains to be seen if some employers will pass the increase to their employees.
Global Salary trends: Pay Communication
Approximately two thirds (64%) have clearly defined pay principles and processes, according to survey data. The focus should be on communicating them effectively to encourage trust and understanding in the workplace. 3R Strategy reports that while 57% of businesses engage in some type of pay communication, there is a huge opportunity to improve the reach and quality. Up to 35% of respondents do not communicate this important information at all.
Only 26% of companies make salary ranges available to their employees, at least in some countries. Businesses should communicate this information carefully to employees in order to build trust and engage them.
Transparency of Pay in Recruitment
As evidenced by 66% of organizations displaying salary ranges on job advertisements in some countries, there is a growing awareness about the need for more pay transparency. This is in line with the EU Pay Transparency Directive. The directive aims to increase transparency of pay and ensure fair and equitable pay within the European Union. It does not directly apply to the UK because of Brexit. 29% of respondents do not include salary ranges in their job advertisements, which could be a missed opportunity to attract a larger pool of talented candidates.
The results also reveal that over half (51%) still ask candidates for their current salaries. This practice can perpetuate disparities in pay and hinder diversity efforts.
Gender Pay Gap Reporting
In some countries such as the UK it is mandatory to report the gender pay gap. However, the EU Pay Transparency Directive is making more detailed reporting of the gender pay gap by job grade or level relevant in other areas. Only 28% of companies report gender pay gaps by level. This type of reporting, which requires careful preparation, can reveal potentially worrying trends hidden in the organisation’s overall figures.
Rameez Kaleem, the founder and managing director at 3R Strategy, commented on the results: “We were thrilled with the level participation. We received responses from over 40 countries, and in more than 20 sectors. It was pleasing to note that UK workers are likely to experience a real increase in their salary for the first year since the pandemic. This is contrary to last year’s results. This is a good sign for employees who are struggling to pay high living costs. UK inflation has dropped significantly in the last year, and interest rates are beginning to ease. Our report is intended to be a useful resource for businesses in 2025 when planning salaries.
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