Employers anticipate lower pay rises in 2025
Over two-fifths (43%) of employers anticipate awarding a pay rise worth between 3% and 3.99% in 2025, according to IDR’s latest poll of employers’ pay intentions for the coming year. This finding comes from responses given by 136 employers yet to decide their 2025 pay award. Nearly two-fifths (37%) of this sample said that the main pay rise for staff in 2025 is likely to be worth between 2% and 2.99%, while just 14% feel that their pay award will be worth 4% or more. In terms of how these employers compare their potential 2025 increase with the 2024 pay rise, four-fifths said that they anticipate awarding lower increases to staff next year than they did in 2024. Meanwhile, 16% said that the level of pay rise next year is likely to be the same as the level of increase awarded in 2024 and just 4% expect that their pay award in 2025 will be higher. These findings hint at an easing of pay pressures and the possibility that pay awards could trend down in 2025.
Affordability is key influence on pay decisions in 2025
The poll received responses from 168 employers in total. The majority (94%) of respondents cited affordability as a key influence on their organisations’ pay decisions for 2025. Participants were asked to indicate the main influences from a list of 12 options in the poll. Inflation was the next most important factor with three-fifths of respondents indicating this as an influence. This proportion is lower than at the same time last year when 69% citied inflation as a main influence. This is likely to be due to the fall in the rate of inflation, but it also shows that it continues to figure relatively highly in employers’ concerns, perhaps this time as it comes down, and also because the cost of living itself remains a concern for both sides of the employment relationship (see below).
Pressure to remain competitive and the cost of living were the next two most important factors with 58% and 53% of respondents respectively citing these as influences. The fifth most influential factor on pay decisions for next year is the National Living Wage, as indicated by around half (49%) of participants. This proportion is up from 34% in our last poll, despite the forthcoming increase to the statutory rate being lower next year than this year (a 6.7% uplift for 2025 compared to 9.8% in 2024), which could be due to the pressure to maintain differentials between the lowest-paid workers and more senior roles. The voluntary living wage is less influential with just 30% of participants indicating this as a factor.
Impact of changes to National Insurance contributions
The poll sought to gather insights on how employers will respond to the increase in employers’ NI contributions and the lowering of the earnings threshold for these that takes effect from April 2025. The most common response cited by participants in our poll is to award a lower level of pay rise to employees than would otherwise have been the case. Over a third (37%) said this was an ‘extremely’ likely response and a further 32% said this was ‘moderately’ likely. The results also revealed that many employers will be able to absorb the cost of the changes to employers’ NI.
Premium pay gains prominence
Increasing premium pay is likely to be higher on the HR agenda next year when compared to 2024. Some 14% of participants reported that they may be looking to uplift rates for overtime, shift and/or unsocial hours. This is a much higher proportion compared to those who made changes in this area in 2024 (just 5% of participants). Some employers are also considering enhancing their maternity, paternity or parental leave offering, their pension provision or increasing holiday entitlement.
About the research
The poll was conducted in November and December 2024 and gained 168 responses from mostly large and medium-sized private sector firms employing over 1.2 million workers in total. Two-thirds of respondents operate in the private sector (43% in private services and 23% in the manufacturing and primary area). Around a fifth (21%) are in the not-for-profit area and public sector employers constitute 13% of the sample.
Want to read the rest of this article?
Subscribe to Pay Climate to read this article in full and be notified of all articles exclusive to subscribers. Find out more by clicking below:
Want to support IDR's research?
We would like to monitor the insights from our poll by gathering information from HR professionals on agreed pay awards. Click below to provide us with information on your firm's latest pay review and in return you will receive a free copy of our next analysis article on the latest findings from across the economy.
Pay in 2024
Read IDR's article on pay outcomes for 2024, which was written for Personnel Today and takes a look back at pay trends from last year.