UK pay awards have remained at 3 percent for the third consecutive rolling quarter in February, according to new research – marking the lowest level since December 2021.
The research was carried out by HR data and insights provider Brightmine. Employers are reducing budgets, delaying pay decisions and, in some cases, implementing pay freezes. The latest inflation data from January 2025 reveals that pay awards are now in line with Consumer Price Index (CPI) inflation at 3 percent.
This ends a 15-month period, beginning in October 2023, during which pay awards consistently outpaced inflation. Sheila Attwood, senior content manager for data and HR insights at Brightmine, said the data shows a cautious approach from employers in response to economic pressures.
“While pay settlements remain below last year’s levels, we are seeing pay awards align with inflation, which may see some relief from businesses who previously needed to keep pace with higher-than-expected inflation levels,” she said.
Impact of National Insurance Contribution Increases
Changes to employer NICs rates and thresholds will take effect from April, leading to increased costs for most organisations. While one-third of businesses are not planning to cover the cost within their pay budgets, the majority are making adjustments to their pay strategies.
The most common response is a reduction in pay award budgets, with larger organisations more likely to take this approach. Among small businesses (fewer than 250 employees), 44.1 percent plan to reduce pay awards. This figure rises to 60 percent for medium-sized firms (250-999 employees) and 65.9 percent for large organisations (1,000 or more employees).
Employers are also considering alternative cost-cutting measures, including recruitment freezes, restructuring teams and, in a small number of cases (4.3%), expanding salary sacrifice schemes to offset NIC increases.
Addressing National Living Wage Increases
From April 2025, the national living wage for workers aged 21 and over will rise by 6.7 percent to £12.21 per hour, affecting nearly 60 percent of organisations. Many businesses are concerned about maintaining pay differentials as lower-wage employees receive a proportionally higher increase.
Nearly three-quarters (74.3%) of affected organisations anticipate a squeeze on pay differentials, while 20.1 percent expect to maintain them. Responses to this issue vary. Around 40 percent of affected organisations are not taking any action, while a quarter plan to grant additional pay rises to employees at the next pay levels. Others are conducting pay structure reviews to manage long-term pay equity.
Some businesses are also considering alternative measures such as upskilling staff for promotion, using bonuses for higher-paid employees or enhancing benefits to retain talent.
Attwood added, “The increases in National Insurance contributions and the national minimum wage are forcing businesses to make tough decisions on pay budgets. Many are prioritising financial stability over pay rises and businesses must find ways to manage employee expectations when it comes to this year’s pay awards. Strategies such as enhancing benefits, benchmarking pay or introducing inflation-linked pay adjustments can significantly help alleviate pressure on compensation decisions.”
Pay Awards in February 2025
Brightmine’s analysis for February 2025 is based on 102 pay settlements effective between 1 December 2024 and 28 February 2025, covering approximately 135,000 employees.
Pay awards remain closely clustered around the median, with the middle half of increases falling between 2.5 percent and 4 percent. The most common pay award over the past three months was a 3 percent increase, accounting for 27.5 percent of settlements. This was followed by 2 percent increases, seen in 14.7 percent of settlements.
Nearly three-quarters (72.9%) of pay settlements are lower than those received by the same employees in the previous year. Only 10.4 percent of pay awards remained unchanged from last year. A 3 percent median pay award has been recorded across both private-sector services and the manufacturing-and-production industry, showing a consistent approach to pay across different sectors.
