Most organisations are expecting salary rises to be lower in 2025, with increases to employers’ national insurance likely to impact pay awards.
A new survey from Incomes Data Research (IDR) explored pay intentions for this year and found that four in five employers anticipate smaller pay rises compared to 2024.
A further 16% of those polled said that wage rises in the next year are likely to be equal to those awarded in 2024, while just 4% believe they will be higher.
According to IDR, these results indicate an easing of pay pressures and a potential downward trend in awards as the increase in employers’ NI costs take effect.
More than two in five (43%) of pay awards are expected to the between 3% and 3.99%, while 37% anticipate it will be between 2% and 2.99%.
Only 14% believe the pay rise will be 4% or more, compared to the 4.5% typical value of awards given in 2024.
Analysis by sector shows that the largest proportions of employers in both private services and manufacturing (55% and 46% respectively) predict that their pay rises in 2025 will fall between 3% and 3.99%.
By contrast, the largest proportions of employers in the not-for-profit and public sectors see the main range for increases lower at between 2% and 2.99% – as predicted by 57% and 50% of respondents from those sectors.
Among organisations that had already determined their 2025 awards, 84% said this year’s rise will be lower than last year’s, while the remaining 16% plan to award the same level of increase.
Separate IDR analysis of pay deals already agreed for 2025 confirmed the downward trend, finding the median pay award to be 3.5%, a 1% decline from 4.5% in 2024.
It also showed around 45% of 2025 pay awards are worth 4% or more.
The poll also highlighted how employers predict they will respond to the planned increase in employers’ NICs and the lowering of the earnings threshold effective this April.
Awarding lower levels of pay rises was the most common response, with 37% claiming they were ‘extremely’ likely to do this and a further 32% saying it was ‘moderately’ likely.
However, just under half (45%) are extremely or moderately likely to absorb the cost by ‘accepting reduced profits’, while 57% are likely to absorb the cost in another way – either as well as or instead of accepting a reduction in profit, which could include raising prices.
While organisations say they are less likely to put recruitment on hold or make redundancies because of the hike, around one in three admit it is either extremely or moderately likely.
Most survey respondents said affordability was a central factor when it came to pay decisions, followed by inflation, which was cited by three in five of those polled – down from nearly seven in 10 (69%) in 2023.
Zoe Woolacott, senior pay researcher at IDR, said: “Inflation is currently lower than it was a year ago and this has reduced the upward pressure on pay to some extent. However, the findings from our poll show that inflation continues to figure relatively highly in employers’ concerns even as it has come down, in part because the cost of living itself remains high.”
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