According to a new WTW study, UK employers will continue to reduce their salary budgets in the coming year.
The data shows that the budgets allocated to organisations for wage increases have decreased by nearly half (48%), with an average of 4.3% in 2024 and 3.9% in 2025.
According to the latest Salary Budgeting Report of the global advisory, broking and solutions company, employers who implemented large pay increases post-pandemic, following the Great Resignation, and after high inflation may now face pressure because of changes in their national insurance contributions announced by the government in its recent budget.
WTW noted that, despite the fact that recent budget increases are lower than the 5.3% average reached in 2023 (which was achieved in 2021), they remain higher than those of 2020, 2021, and 2022 when they were 2.2%, 2.4%, and 3.2%, respectively.
The total payroll costs, including salaries, bonuses and variable pay, continued to rise this year. More than four out of five employers (82%) reported an increase in spending from 2023.
The main reasons given by organisations that plan to reduce their budgets for salary increases are cost management (35%), and weaker financial performance (31%). The main reasons for increasing budgets were inflationary pressures (44%), and tight labour markets (26%).
The report revealed that less companies are having difficulty retaining and attracting talent. 35% of respondents said this was a problem, compared to 43% in 2012.
Many organisations have taken steps to improve workplace culture in response to the current market conditions. Around half of them (51%) place more emphasis on equity, diversity and inclusion. A similar proportion (50%, respectively) places greater importance on workplace flexibility and improving employee experience.
The survey also revealed that a third of respondents (33%) plan to improve the employee experience and 28% will increase training opportunities.
Paul Richards, Europe rewards intelligence leader at WTW said: “The market circumstances of the last few years have encouraged companies to review their cultures, benefits, and rewards, and ease attraction and retention problems.
Companies should review their entire offering as budgets tighten due to increased contributions by employers for national insurance. They should also focus on the workplace culture, communications, and rewards and benefits as a group.
Four out of five employers who offer flexible work arrangements use hybrid or remote models. Over two-fifths (43%) have remote working options and do not require their employees to be in the office a certain number of days.
Two-fifths (41%) employers who have changed their compensation programs or have plans to do so have recruited more people in higher salary brackets, and nearly two-fifths (37%) have conducted a complete compensation review for the entire workforce.
Gaby Joyner is the head of employee experience for Europe at WTW. She believes that there has been an evolution in employee expectations. Employees now place a greater emphasis on flexibility, individualisation of benefits, and communication about pay and total rewards.
She added: “As the pay transparency regulations are implemented, employers must focus on providing clear and consistent communications around pay levels and decisions. They should also continue to improve employee experiences to avoid new issues with retention and attraction.”
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