On the surface back in 2022, pay looked good. The ONS reported the highest average private sector pay awards since 2012 at 4% over the whole of 2022. The growth in regular pay at 4.7% was also the fastest growth in 15 years. However, when taking into consideration this against the rising costs of living, these increases were below the rate of inflation and actually equated to a 3% fall in pay for most UK employees.
For 2023, the latest forecasts from a number of sources suggests that the trend for record pay awards will continue. With an expectation that the average pay award for this year across all sectors will be 6%. With both the whole economy, and the private sector, ranges being between 5-8% for the year. Its expected this will be the peak of this pay trend. Average pay awards have been reported at 6% in both quarter 1 and 2 so far in 2023, with experts expecting this to continue for the remainder of the year.
Factors that have been pushing pay award amounts up to this peak amount include inflation and the cost of living, industry pressure and skills shortages. Experts believe that as the economy continues to slowly recover with inflation expected to decrease throughout the remainder of 2023 and into 2024 that average pay award amounts will start to decrease. Other factors including pension costs, the inability to raise prices of products/services further, as well as organisation performance/business volumes, will put more pressure on businesses moving forward. All of which will start to restrict business finances and meaning we can expect to see the decrease of average pay award amounts from 2024 onward.
77% of businesses have predicted that they will be awarding higher pay increases this year than last year, confirming expert opinions on pay increases. However, 11% have said that they will be awarding the same amount as last year, and 11% will be awarding lower increases than last year.
In other employment areas reported recently by the ONS which influence UK pay and earnings;
- The employment rate (16-64 year olds) has increased by 0.3% to 75.8%.
- But also unemployment has marginally increased to 3.8% (1.29 million).
- The recruitment market is starting to become less challenging that previously, with vacancy rates falling to 1.10 million. This is the 10th consecutive period in a row it has fallen, suggesting a downwards trend for total vacancies and hopefully a less challenging market for employers!
When taking into consideration what pay award is right for your business and your staff, it is advisable that businesses consider the following areas carefully to set a rate appropriate for their individual circumstances:
- Look at current statistics from reputable sources including Office of National Statistics
- Consider industry pressures (current and potential) as well as what competitors may be doing
- Reflect on business finances and performance
- Take into account staff performance and productivity
- What retention currently looks like within the business whilst also noting any recruitment and talent challenges the business faces
- Your wider pay and reward strategy – e.g. whether to stagger awards by earnings or role, look at other benefit options, consider benchmarking against the industry
- Larger companies should always consider their gender pay gap reporting responsibilities
- Carefully plan staff communication of reward and the business’ pay transparency policies
If you have any questions about pay and reward strategy, please contact Kimberley Wallace, Senior HR Consultant at Nockolds HR via kim@nockoldshr.co.uk or on 0345 646 0406
Sources: