When looking at both 2024 and 2025 pay awards on an individual-employer basis, around a third of organisations are paying the same award for both 2024 and 2025. The remaining two thirds predict a median year-on-year reduction of 1.3 per cent, within a range of -0.5 per cent and two per cent.
The effect of the National Living Wage
In 2024, the median pay award for those affected by the National Living Wage was one per cent higher than pay awards offered by employers who are not affected by the NLW. This suggests the National Living Wage contributed an additional one per cent to affected employers’ overall pay bills. As a result, many employers are carrying out compression analysis to help maintain competitive pay levels.
There is also the question of how much of an influence the next National Living Wage increase will have on employers’ 2025 pay budget decisions. 21 per cent of organisations indicate that a median additional 1.8 per cent of payroll could be spent on the National Living Wage, within a range of 0.5 per cent to 2.5 per cent.
How to determine pay awards
In 2024, pay awards were predominantly awarded on an across-the-board basis. When asked about how 2025 pay awards will be distributed, more employers will use a combination of across-the-board and individual pay increases. This raises the question about how to make pay decisions fairly and consistently.
Factors driving pay actions
Respondents to our Pulse Survey predicted that pay actions in 2025 are most likely to be driven by external relativities. 58 per cent think that employee turnover will stay the same, which may help stabilise pay award decisions over the next year.
This reflects our UK Reward Management Survey results, where 68 per cent cite external relativities as the main driver of their pay actions. This was followed by 53 per cent saying that internal relativities are driving their pay decisions; while 39 per cent are targeting high performing people with pay increases.
Get in touch
If you have any questions about planning your pay review for this year and scoping budgets for 2025, feel free to call us to discuss. You can also join us at our HR and Reward Conference 2024, taking place in central London on 17th September. Register to attend this popular event in the HR calendar, where you can expect to hear from expert speakers on topical HR and Reward issues, helping you fine tune your total reward strategy.
