09.07.2020

A third of UK employers freeze pay due to COVID-19 crisis as others reduce pay rise budgets

Projections for 2021 are more optimistic as companies expect pay rises to bounce back to almost pre-COVID levels

UK employers have slashed pay rise budgets in 2020 in response to the economic implications of the COVID-19 crisis, according to Willis Towers Watson.

Its latest Salary Budget Planning Report, covering 15,000 employers across 132 different countries, shows that at the beginning of the year UK employers were budgeting for an average of 3.0% pay rises. But the economic impact of the pandemic means that employers have had to revise down pay budgets to 2.7% for this year, a 10% budget cut on average. In addition, over a third (35%) of UK employers are planning to freeze pay, or postpone pay rises, this year and four-in-10 companies (39%) have already decided to reduce annual bonuses.

The report also reveals that one-in-five (19%) businesses in the UK have already taken steps to reduce the size of their workforce, while a further 37% are either planning to, or considering, cuts in response to the COVID-19 crisis. In further measures to preserve cash, 60% of employers have implemented or are considering unpaid leave policies that are either voluntary or mandatory.

Pay rise projections for 2021 are more optimistic as UK employers anticipate that pay budgets will bounce back closer to pre-COVID levels, at 2.9%. However, the proportion of companies planning a salary freeze next year is still six times higher now than before the pandemic (12% now vs 2% before).

Keith Coull, Senior Director in Willis Towers Watson’s Global Data Services business, said:“It’s no surprise to see that many companies are reducing their pay budgets this year. Most companies around the world are in cash preservation and cost optimisation mode and 80% of companies in the biggest economies have already implemented a hiring freeze.

“The full extent of the economic impact of the pandemic is yet to play out as some companies froze pay this year to shore up cash flows, whereas others had already announced pay rises before the pandemic hit, so may feel more of an impact next year.”

Global comparisons

The UK is following a similar pattern to most other G8 economies where employers are planning for lower 2020 pay budgets due to the crisis. The exception is in the United States, where pre and post COVID pay rises are expected to remain steady at 3.0% in 2020 and continue at the same level in 2021.

Similarly, Canadian employers have only cut pay budgets by a 0.1% margin this year (3.0% to 2.9%), before recovering back to 3.0% in 2021.

In Europe, employers in the UK, France and Germany are anticipating their ‘recovered’ 2021 pay budgets will still be lower than their pre-COVID planned 2020 budgets. Only Italy is anticipating a recovery back to pre-COVID levels next year.

G8 Salary Budget increase comparison

Overall salary increases (median)	2020 Before COVID	2020 After COVID	2021
UK	3.0	2.7	2.8
France	2.5	2.3	2.4
Germany	3.0	2.7	2.9
Italy	2.5	2.4	2.5
United States	3.0	3.0	3.0
Canada	3.0	2.9	3.0
Japan	2.5	2.2	2.5
Russia	7.0	5.0	6.0

*All figures given as a percentage.

Industry analysis

A Global analysis of industries shows that the five worst hit sectors for pay freezes or postponed pay rises in 2020 are Retail, where 58% of companies have frozen or postponed pay rises, followed by Media (51%), Leisure and Hospitality (50%), Manufacturing (49%) and Automotive (44%).

The industries least affected by pay freezes or pay rise postponements include Insurance (11%), Banking (16%), Personal & Household Services (17%), Chemicals (18%) and Financial Services (23%).