Pay awards set to reach 2.5% by August 2022

Pay awards remain at 1%Private sector employers expect that the average pay settlement will rise to 2.5% by next September, according to XpertHR.

Some 84% of businesses polled expect to increase pay at their next annual review and half of employees are expected to receive a higher award than they did over the past year.

Sheila Attwood, XpertHR pay and benefits editor, said: “For much of the last year, organisations have continued to feel the impact of the Covid-19 (Coronavirus) outbreak and pay awards have remained muted. However, many employers have reported that Covid-19 is likely to have less of an impact on their future pay plans, with pay awards predicted to increase to 2.5% by September 2022.

“Driving these increases will be a need to respond to the market, with recruitment and retention difficulties pushing wages higher. However, while many organisations also believe that some economic recovery will enable them to award higher increases at their annual pay review, others are still concerned about business volumes and are likely to remain cautious.”

When asked about their forecasts for pay awards in the 12 months to 31 August 2022, almost a quarter of employers expected to award a 2% pay increase – the most common prediction – and a fifth anticipated a rise of 3%. One in 10 expected to award a pay increase of 4% or higher.

The median pay increase, based on the predictions of 200 private sector employers was therefore expected to be 2.5% in the year to the end of August 2022, up from the 1.6% recorded over the previous year.

Employers in both manufacturing and production and private sector services are predicting a median 2.5% pay award. In both sectors the middle half of pay awards are expected to sit between 2% and 3%.

Looking at pay data for the three months to the end of September 2021, XpertHR recorded a median pay increase of 2% – a figure that has remained unchanged for six consecutive rolling quarters.

The analysis of 84 pay awards effective in the three months to 30 September 2021 also found that 8.3% implemented a pay freeze, 60.9% of pay awards were higher than what the same group of employees received the previous year, 26.6% of employees received a lower award, and 12.5% received the same.

Public sector settlements were worth 1.5% at the median, down half a percentage point on the previous rolling year, and down one percentage point from the 2.5% recorded a year ago, and private sector awards increased to 1.7% from 1.6% in the year to the end of August.