The median pay award for the three months to the end of December 2024 declined further to 3.3%, as the government’s national insurance announcement began to have an impact.

New analysis from Brightmine, formerly XpertHR, showed a sluggish second half of 2024, as pay rises stalled in Q3 and dropped in November and December suggesting a trend of declining pay awards.

The 3.3% figure was down on the previous rolling quarter (September to November) which recorded a revised median pay award of 3.5%.

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The government’s raising of employers’ national insurance contributions and higher national minimum wage rates, both set to take effect from April 2025, are expected to add pressure to employers’ pay budgets, with many likely to adjust their 2025 pay awards even further to offset the financial impact.

Sheila Attwood, Brightmine senior content manager, said: “Businesses are feeling financial pressure as we kick off the beginning of the year and are looking for creative ways to minimise the impact on employee pay packets – whether that’s passing costs onto consumers or reducing the number of employee hours worked especially for entry-level, national living wage jobs, like in the case of Next Group.

“However, despite these precautions, there’s undoubtedly pressure on businesses, which is being reflected in the pay rises we’re expecting to see given this year.”

With inflation levels remaining relatively stable, the combination of rising NICs, the changes to NI thresholds, and ongoing economic pressures is likely to result in a decrease in 2025 pay awards compared to the median increase of 4.5% recorded for the whole of 2024.

Pay deals in the final three months of the year ranged from 1% to 5%, with no pay freezes. The majority (77.8%) of pay awards in the latest quarter were lower than the deal given to the same employee group in 2023.

Brightmine has analysed preliminary data on pay awards for January 2025, providing a clear view of emerging trends in employee compensation. Insights from 29 settlements to date reveal a median basic pay award of 3.5% for January 2025. The most frequent award value is 2%, closely followed by 3% and 3.5%.

Brightmine’s latest pay forecasts survey adds further context, with the median among the predictions from 289 organisations at 3% for 2025. This aligns with the trends observed in the early January data. These findings reflect a cautious approach to pay awards in 2025, shaped by the broader economic landscape and organisational strategies.

Attwood commented: “These early insights into January 2025 pay awards reflect the broader impact of the UK’s current economic conditions and shifting government policies. As pay strategies evolve, these trends offer a fascinating lens through which to understand how businesses are balancing workforce priorities with external pressures.”

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