Employees set to see wages rising at a higher rate than inflation ‘might be a challenging task’ – London Business News | Londonlovesbusiness.com

While UK inflation has notably declined over the past year, the sharp rise in the cost of living in previous years continues to impact individuals and businesses.

As a result, salary budgeting for 2025 might be a challenging task for companies. To provide a helpful resource for next year’s salary budgeting process, UK-based pay and reward consultancy 3R Strategy has now launched its 4th Global Salary Planning Report.

Based on responses from organisations in more than 40 countries across over 20 industries, the report investigates the salary budgets in 2024 and forecasts for 2025, alongside data on pay transparency, communication, performance-related pay, the use of salary data, and gender pay gap reporting.

In 2022, with UK inflation soaring to 8.6%, most organisations set their pay budgets at 5%. A year later, inflation dropped to 6.3%, yet the median pay increase budget remained at the same level. However, with inflation at 1.7% in September 2024, the lowest in over three years, and the 2024 median pay increase budget at 4%, with 2025 forecasted at 3.5%, this suggests that UK employees are likely to see wages rising at a higher rate than inflation for the first time since the pandemic.

The report analyses the data by country and industry, identifying key differences between sectors. In the UK, the financial services sector has the highest pay budgets for next year at 5%, fuelled by intense competition for talent and the need to retain technical expertise. In contrast, the charity and media & arts sectors report the lowest increases at 2% and 2.8%, respectively.

Importantly, in the recent Autumn Budget, the government announced a National Living Wage increase of 6.7% from April 2025, which exceeds the planned budgets for that year. Organisations will need to factor this into their planning, as a 3.5% budget doesn’t mean that everyone can receive a 3.5% pay increase – entry-level positions that are paid at the National Living Wage will require a 6.7% rise.

Also in the budget, employer National Insurance Contributions (NIC) are set to increase from 13.8% to 15%. It remains to be seen how this will impact pay budgets, but it is possible some organisations will look to pass this on to employees by reducing their pay increase budget.

According to survey data, nearly two-thirds (64%) of organisations have implemented clear pay principles and processes. However, the emphasis should now be on effectively communicating these to foster trust and understanding among employees. While 57% of companies engage in some form of pay communication, 3R Strategy notes there’s a significant opportunity to improve both the reach and quality of this communication. As many as 35% of respondents don’t communicate this crucial information to their teams at all.

Although 68% of organisations have salary ranges, only 26% make them available to employees in at least some countries. To build trust and engagement, businesses should prioritise carefully communicating this information to bridge the gap in pay transparency internally.

There’s a growing awareness of the need for greater pay transparency, as evidenced by a reported 66% of organisations displaying pay ranges on job adverts in at least some countries. This aligns with the EU Pay Transparency Directive, regulations aiming to increase pay transparency and ensure fair and equal pay in the European Union (not directly applying to the UK due to Brexit). However, 29% of respondents still don’t include salary ranges when advertising open positions, potentially missing out on attracting a wider pool of highly talented candidates.

Furthermore, the results reveal that more than half (51%) of organisations still ask for candidates’ current salaries, a practice that can perpetuate pay disparities and hinder diversity efforts.

While overall gender pay gap reporting is mandatory in some countries, such as the UK, more detailed reporting by job level or grade is becoming increasingly relevant in other regions due to the EU Pay Transparency Directive. Currently, only 28% of companies are reporting gender pay gaps by job level. Despite requiring careful preparation, this kind of reporting can surface potentially concerning trends that might be hidden in organisation-wide figures.

Founder and managing director of 3R Strategy Rameez Kaleem said, “Conducting our Global Salary Planning Survey for the fourth year in a row, we were delighted with the level of participation, with responses collected across over 40 countries and more than 20 different sectors.

“We were especially pleased to note that UK employees are expected to see real growth in their salaries for the first time since the pandemic, contrasting with last year’s findings.

“As UK inflation has declined significantly over the past year and interest rates have begun to ease, this is an encouraging sign for all employees struggling with the high cost of living. We hope our report will serve as a valuable resource for 2025 salary planning to help businesses attract and retain talent.”