16.12.2024

UK Salary budgets continue to decline for 2025 as organisations struggle to find their ‘new normal’

Nearly half of UK organisations (48%) have reported that salary increase budgets for 2024 were lower than 2023. While salary increases continue to fall with 2025 planned increases projected to be 3.9% on average, compared to the 4.3% average budget awarded in 2024. That’s according to the latest Salary Budget Planning Report by WTW, a leading global advisory, broking, and solutions company.

After several years of higher salary increases following the pandemic, the Great Resignation and high inflation and now with budgets facing pressure following recent changes to employer’s national insurance contributions, companies are grappling with finding their ‘new normal’.

UK Salary Budget increases 2020 actual– 2025 planned

2020 2021 2022 2023 2024 2025

actual actual actual actual actual planned

2.2% 2.4% 3.2% 5.3% 4.3% 3.9%

Despite steady declines over the past few years and a conservative outlook for 2025, salary increases still remain at a healthy rate by historic standards. Total payroll expenses (which include salaries, bonuses, variable pay and benefit costs) continued to rise in 2024, with 82% of organisations reporting higher payroll expenses than in 2023.

For those companies planning to reduce pay rise budgets, cost management (35%) and weaker financial results (31%) were the leading reasons. For those planning to increase salary budgets, inflationary pressures (44%) and tight labour markets (26%) were cited as the main reasons.

Overall, fewer organisations are experiencing difficulties in attracting and retaining employees, with just over a third (35%) of companies stating this as an issue, showing a decrease of 8 percentage points across the last two years.

Many organisations report having already taken action to improve workplace culture in light of the current market conditions, as half (51%) have placed broader emphasis on diversity, equity and inclusion, greater workplace flexibility (50%) and improving the employee experience (49%). In addition, a third (33%) intend to further improve the employee experience, while 28% are looking to increase training opportunities.

Paul Richards, Europe Rewards Data Intelligence Leader, at WTW said: “After several years of higher salary budget increases, rates are starting to decline, as companies face a new set of challenges in place of the pandemic and Great Resignation.

“The market conditions of the past few years have prompted action from companies to review their culture, benefits and rewards and in turn ease attraction and retention issues.

“But as budgets become tighter in light of increased employer national insurance contributions, companies should continue to review their overall offering, placing emphasis on workplace culture, communication and benefits and rewards as a whole.”

As employees continue to place value on flexible working, companies are responding, with 8 in 10 employees that offer flexible work arrangement following a hybrid or remote work model. And remote workers are typically given free reign over their location, as over two fifths of organisations (43%) do not insist on a specified number of days in the office.

In response to these new budget levels, two fifths (41%) of organisations that have made or are planning changes to their compensation programs or workplace flexibility have tended to take on staff higher in the salary range, while over a third of organisations (37%) have undertaken a full compensation review of all employees.

Gaby Joyner, Head of Employee Experience, Europe at WTW says: “Employee expectations are shifting, with more value being placed on flexibility, personalisation of benefits and communication around pay and broader Total Rewards.

“And as pay transparency regulations come into force, employers need to focus on offering clear and consistent communication around pay levels and pay decisions, while continuing to develop the broader employee experience, to ensure new attraction and retention issues don’t arise."

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