New data from Brightmine, the HR data and insights provider, reveals payawards have stabilised at 3% for the third consecutive rolling quarter in February, confirming the lowest pay awards since December 2021. 

Against the backdrop of rising National Insurance contributions, businesses are maintaining cautious pay strategies, marking a clear shift from last year’s more generous settlements.

This month also marks a shift in the balance between pay awards and inflation. The latest inflation data (January 2025) shows that payawards are now aligned with CPI inflation at 3%. This ends a 15-month period, starting in October 2023, where pay awards consistently outpaced inflation.

Sheila Attwood, senior content manager, data and HR insights at Brightmine comments: “The stabilisation of pay awards reflects a more cautious approach from employers as they balance wage growth and rising costs. 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.”

Managing National Insurance hikes

Changes to employer National Insurance contributions (NICs) rates and thresholds will take effect from April 2025, bringing increased costs for most organisations. While one-third of businesses are not planning to cover the cost in the pay budget, the majority are adjusting their pay strategies in response.

The most common action is reducing pay award budgets, with larger organisations more likely to take this step. Among small businesses (fewer than 250 employees), 44.1% plan to reduce pay awards, rising to 60% for medium-sized firms (250-999 employees) and 65.9% for large organisations (1,000+ employees).

Businesses are employing a range of cost-cutting measures to reduce pay award budgets:

• Freezing pay – Some employers have said that they will not offer pay awards unless legally required (for example to meet new minimum wage rates).
• Reducing budgets – Others report that NIC increases have cut pay budgets by up to half.
• Delaying pay decisions – Some are postponing pay awards to better assess the financial impact.

Additionally, around a quarter of organisations are implementing recruitment freezes or restructuring teams to manage costs. A small proportion (4.3%) are introducing or expanding salary sacrifice schemes to offset NICs increases.

Addressing national living wage increases

From April 2025, the national living wage for workers aged 21 and over will rise by 6.7% to £12.21 per hour, affecting nearly 60% of organisations.

One key challenge is maintaining pay differentials when lower-wage employees receive a larger percentage increase. Nearly three-quarters (74.3%) of affected organisations expect a squeeze on differentials, while 20.1% anticipate maintaining them.

Responses to this issue vary:

• No action – Around 40% of affected organisations are not addressing the squeeze.
• Additional pay rises – Around a quarter plan to give additional pay rises to employees at the next pay level(s). Some will apply the same increase to employees at the next one or two levels, with smaller increases for those at higher levels, squeezing differentials at more senior levels but to a lesser extent.  
• Pay structure reviews – A fifth of businesses are reassessing salary structures to better manage long-term pay equity.

Other measures include upskilling staff for promotion, using bonuses for higher-paid employees, or enhancing benefits to retain talent.

Attwood adds: “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.”

Brightmine February 2025 Pay Trends Highlights

The Brightmine analysis this month is based on details of 102 pay settlements effective between 1 December 2024 and 28 February 2025, covering around 135,000 employees.

• Pay awards tightly bunched. Pay awards do not differ widely from the median value, with the middle half of pay increases falling between 2.5% and 4%.
• More than a quarter of deals at exactly 3%. The most common pay award over the past three months was an increase of 3%, given in 27.5% of settlements analysed. This was followed by increases of 2%, made in 14.7% of settlements.
• Clear trend of pay awards lower than last year. Almost three-quarters (72.9%) of pay awards are lower than the same group of employees received the previous year. While 10.4% of pay awards paid the same increase as last time around.
• Private-sector services and manufacturing organisations on a par. A 3% median pay award over the past three months is recorded for organisations in private-sector services, as well as those in the manufacturing-and-production industry sector.

Pay review pattern - whole economy, February 2024 to February 2025