A large proportion of employers are predicting that pay outcomes will remain steady next year. Almost three-quarters (72%) of the 95 organisations that took part in IDR’s recent survey, ‘Planning for pay in 2027’, anticipate that their 2027 pay award is likely to be at the same level as this year’s, though a further 18% are forecasting a slightly lower increase. The latest findings build on those of last year’s survey, when 63% of respondents planned an award for 2026 which was likely to be at the same level as the previous year. Tougher trading conditions for some or even many firms are meeting inflationary cross-winds, leading to more difficult decisions and a greater likelihood of employers making the same or similar awards as they try to craft outcomes that will meet the perennial requirements of recruiting and retaining staff, as well as keeping them motivated. Meanwhile only 10% of employers believe that next year’s pay outcome will be higher than in 2026.

Influences on pay rises in 2027

Employers indicated the relative importance of 14 key factors in deciding the level of their pay awards for the coming year. Affordability continues to be the most important factor for survey participants, with 97% considering this as ‘important’ or ‘very important’ (slightly down from 98% last year). The future business outlook is the second biggest influence, considered ‘important’ or ‘very important’ for 82% of organisations, a decrease from 86% last year.

Changes to the ‘going rate’, market benchmarking, and inflation have all increased significantly compared to our last survey. The importance of changes to the ‘going rate’ has increased to 74%, up from 65% last year, and market benchmarking’s significance has increased to 77%, up from 70%. This sharp increase is likely to be because HR professionals are paying much closer attention to levels of pay elsewhere. The importance of inflation has also increased, to 76%, up from 69% last year. The rate of inflation has itself risen and is expected to rise further in the light of events in the Middle East. HR professionals clearly have this in mind when looking to next year’s pay round.

Inflation

Inflation remains a strong orientation point for setting pay, with the percentage of employers referencing it either formally or informally remaining unchanged from last year at 80%. The proportion of participants that said they reference inflation informally has increased slightly, up from 55% to 57%. By contrast, the number of participants who reference inflation formally (for example as part of long-term pay agreements) has decreased from 25% last year to 22% this year.

The Consumer Prices Index (CPI) remains the most commonly referenced inflation figure in pay decisions, mainly due to its predominance in the media’s reporting of inflation. However, the Office for National Statistics (ONS) makes the CPIH its leading measure. Because the CPIH includes an estimate of housing costs, based on imputed rents, it is a more comprehensive measure of inflation than the CPI. Of those employers that reference a specific inflation measure when making pay decisions, whether formally or informally, 89% use the CPI; 56% the RPI; and 53% reference the CPIH.

Strong indication that pay awards will remain level

The greatest proportion of anticipated 2027 pay awards are in the 3% to 3.99% bracket (60% overall this year, with the majority of these falling between 3% and 3.49%, compared with 52% of respondents predicting outcomes at this level last year). However, fewer awards are forecast to fall in the 2% to 2.99% range (30%, compared with 38% last year) while the proportion of awards that are likely to fall between 4% and 4.99% is again lower this time – just 6%, down from 8% in last year’s survey.

2026 pay outcomes

Over two-thirds (68%) of survey respondents who have already agreed their 2026 pay review report that the level of the pay increase awarded this year, in 2026, was the same as that originally planned with equal proportions (16% in each case) of awards lower and higher than previously intended. The most common reasons for different pay outcomes were the cost of living and inflation combined, cited by 65% of the 28 respondents that awarded a different increase from that originally planned. Participants were able to choose as many options as were relevant and half of participants who cited the cost of living also cited inflation. A quarter attributed any difference to lower profits and 14% reported that labour market pressures had an impact on revisions to pay awards. Meanwhile higher profits only had a bearing on pay decisions at one company.

We asked participants to detail how long the process had taken for deciding this year’s pay outcome compared to recent years. The same proportion – ­­63% – of respondents this year and last year reported that it has ‘taken the same time as usual’ to decide on their pay outcome. However, almost a third (32%) of respondents report that it has taken longer than usual, up a little from last year.

Regardless of respondents’ original intentions for pay awards in 2026, in practice 41% of organisations’ awards were (or if not yet agreed are likely to be) the same as last year’s. Over a third (35%) of survey participants report having made a lower award, while increases at 23% of organisations are higher than in 2025.

Recruitment, retention and staffing levels

Recruitment problems have remained steady or even eased compared with last year. Recruitment is ‘not a problem’ for 59% of organisations, compared with 57% of organisations in our 2025 study. Of those finding it difficult, the proportion finding it ‘fairly difficult’ remains unchanged at 40% of organisations. Just one respondent reports that recruitment is ‘very difficult’, compared with two organisations last year.

Among those employers who are experiencing recruitment difficulties, around three-fifths cited a lack of suitable skills or experience on the part of applicants. Over half (54%) agreed that competition from other firms is a contributing factor, while pay and conditions for specific roles being insufficiently attractive to applicants and pay being lower than at competing organisations are contributing to recruitment difficulties at 41% and 28% of respondents respectively. Only 15% of survey participants facing recruitment difficulties attribute these to a shortage of applicants.

Retention difficulties have eased slightly compared to last year’s survey. Retention is ‘not a problem’ for almost three-quarters (72%) of organisations, compared to 68% in 2025. Just over a quarter (26%) describe it as ‘fairly difficult’, down from 31%. Two organisations advise that retention is ‘very difficult’, compared to just one organisation last year.

The majority of this small subset of respondents who report having issues with retention employ lower-paid staff in retail and fast food, pubs and restaurants. The underlying problems reported with retention are, chiefly, higher pay on offer at competitors (around three-quarters highlighted this as a reason), a relative lack of opportunities for staff to develop and progress (around two-fifths – 44% – of the subset) and issues relating to the organisational culture or management style (32%). Less commonly, respondents cite competitors’ superior benefits and a lack of flexible working provision as factors in their retention difficulties (both 8%).

The findings on staffing levels are consistent with those on retention. Just over half (51%) of survey participants predict that their permanent staffing levels will remain the same and 65% expect temporary/agency staff numbers to stay steady. Meanwhile around a quarter (26%) think that permanent staffing levels will decrease (the same is true of temporary/agency staff at 25% of respondents). Just 23% expect their headcount to increase for permanent staff and just 11% think it will do so for temporary/agency staff. The most commonly cited reasons for changes in headcount are business expansion (25%) and increased productivity (22%). Only 10% of employers have frozen recruitment for some employee groups and this proportion is unchanged from our last survey in 2025.

Pay transparency, structuring and progression

Transparent pay rates are rare when advertising roles either externally or internally. Almost half (46%) of participants do not include salary information in external job advertisements. A smaller proportion (43%) provide details of salary ranges/pay scales but less than a fifth (18%) advertise spot rates. (These combined figures exceed 100% because some respondents operate both spot rates and ranges/scales.)

The same proportion (46%) of survey participants do not actively share pay information with staff. Just under two-fifths (38%) of respondents share pay and grading structures with employees, with 32% including details of salary ranges in internal job advertisements and a fifth doing so for spot rates.

We asked survey respondents how pay is structured for their main staff grouping. Almost three-fifths of pay structures are broad bands or ranges with spans of more than 10% between the minimum and maximum of each band. Nearly a quarter (23%) of pay structures comprise single or spot rates for each grade or role; 13% involve the use of pay scales or spines with increments; and just 6% are constituted by narrow bands or ranges with spans of less than 10% between the minimum and maximum.

Interestingly, the survey has uncovered something of a drift away from performance-related pay. When asked how employees progress through each grade, nearly two-fifths (37%) of participants cited performance assessments as the basis of progression, while just under a third (32%) cited experience or time served as the main criterion. This is interesting in the light of the finding that most employers use salary ranges rather than scales and could be an indication of the dwindling popularity of performance-related pay. Skills acquisition and competency assessments are used at around a quarter of employers (26% and 25% respectively) while just 16% of respondents detailed some relationship to market measures. Respondents were able to choose all measures that apply to their company and 37% use more than one measure, something that indicates the continued phenomenon of hybridisation when it comes to the basis of individual pay rises.

Responding to new legislation

Just over two-fifths of the sample (42%) have already carried out an equal pay audit while a further 27% plan to do so next year. Meanwhile the same proportion have calculated their ethnicity pay gaps and a third intend to do this in 2027. Fewer respondents (28%) have taken steps to calculate their disability pay gaps but nearly two-fifths (37%) will do this next year. Only 16% of the sample have already undertaken all three activities.

We asked participants how prepared they are for legislative provisions in respect of action plans showing how they intended to reduce gender pay gaps. Over half (52%) of respondents already publish action plans and of this proportion, nearly three-fifths (58%) publish plans internally and externally. A third publish to a restricted internal audience whilst only 9% publish plans to all staff, but not externally.

We also asked participants how prepared they are for the likelihood of disability and ethnicity pay gap reporting. Only 24% of participants already publish action plans in this area with over three-quarters of respondents intending to develop and publish plans by the regulatory deadline. Of the 20 respondents who already publish action plans, 45% publish internally and externally, 40% publish to a restricted internal audience and the remaining 15% publish to all staff, but not externally.

Over three-quarters (78%) of respondents do not anticipate a request from (a) trade union(s) for access to their staff in order to campaign for trade union recognition over the next 12 months, though just below half already recognise trade unions in some areas of their operations (see below).

The Employment Rights Act will place new obligations on employers in respect of the circumstances in which flexible working requests can be refused, and the information that must be shared with employees on the reasons for refusal. Half of respondents will not have to make any changes to their flexible working policy or processes to meet these new obligations. A quarter of respondents will have to make small-scale changes whilst another quarter are not sure what changes will have to be made.

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