Employers plan for lower pay awards due to less pressure on pay in 2024

Most employers are planning lower pay awards in 2024 than they made in 2023, but these pay rises are nevertheless likely to be higher on average than those awarded before the pandemic, according to new research from Incomes Data Research (IDR). The results of the Pay Planning for 2024 survey indicate that over half of the respondents are planning for a decrease in the level of 2024 pay awards, compared with those in 2023, due to some easing of upward pressures on pay – mostly as a result of falling inflation but also owing to subtle shifts in the labour market. 

Pay award predictions for 2024 

Our findings suggest that employers are planning for lower pay awards next year, mainly due to less upward pressure on pay because of an expected fall in inflation. This contrasts with previous employer plans for pay. This year, for example, saw higher pay awards overall than 2022. The main factors behind this year's outcomes were of course high inflation but also a tight labour market and the consequent impact on recruitment and retention. 

The results of the survey show that employers plan to reduce pay awards if inflation falls as forecast in 2024. Only 8% are planning on paying higher awards in 2024, with the majority (53%) planning on paying lower awards (see figure 1). These plans for relatively lower pay rises are a result of somewhat reduced upper pressures on pay, mainly due to falling inflation. This year's findings contrast greatly with the findings from last year's survey. Then, only 10% of employers predicted making lower awards with the majority (56%) predicting that they would make higher pay awards. Indeed, other findings from this year’s survey showed that over two-thirds (69%) did in fact pay a higher award than in 2022.

“Next year is likely to see a shift to lower pay awards than in 2023, as long as inflation continues to come down. But if the labour market remains relatively tight, then pay awards will nevertheless be higher than before the pandemic when the average award was only 2 or 2½ per cent. Pay rises next year could be one or two percentage points lower on average and therefore centred on 3% or 4% rather than 5% or 6% as we saw this year,” Esther Enyinnaya from IDR commented. 

One-off payments in 2023 

As well as basic pay rises, this year also saw many employers award employees one-off payments. More than a fifth of organisations (22%) offered employees one-off payments in 2023 - a significant increase compared to 2022. Two-thirds of respondents reported that these payments were made specifically to help staff with the cost-of-living crisis. These payments were most common among firms in manufacturing and production, and not-for-profit (29% in each sector). While the rate of inflation has come down and is predicted to continue doing so, prices for many key items are still rising, and therefore one-off payments could remain in evidence, albeit fewer in frequency and smaller in size. 

Recruitment and retention 

Pressures in recruitment and retention are easing according to our survey. Recruitment has been a long-standing challenge for employers and over three-fifths of respondents highlighted that recruitment is still an issue. The proportion of organisations that are finding recruitment ‘very difficult’ declined from 24% in the 2022 survey to just 6% in 2023. However, the proportion of employers that reported finding recruitment ‘fairly difficult’ increased significantly, from 67% in 2022 to 78% in 2023, indicating that many firms are still experiencing difficulties in this area. 

Although retention difficulties have eased relative to those for recruitment, our findings suggest a significant increase in the proportions regarding retention problems as a long-term issue. The proportion of employers describing retaining staff in their organisation as ‘very difficult’ decreased significantly from 7% to 4%, and the number of organisations identifying retention as ‘not a problem’ increased from 22% to 38%. The proportion of employers finding retention ‘fairly’ difficult has also seen a substantial decline, from 71% to 58%. But the survey also asked employers how they regarded their retention issues – with 60% of respondents suggesting that it is a medium-term issue and over one-fifth of respondents (21%) describing it as a long-term issue. The latter figure showed an increase on 2022, when only 15% of employers regarded retention difficulties as a long-term issue. “Recruitment and retention problems have eased somewhat. But many firms are still experiencing moderate recruitment difficulties. And while retention appears to be easier than recruitment, for a subset of employers the issue has become more protracted, with more regarding retention as a long-term problem than hitherto,” Esther Enyinnaya from IDR comments. 

Notes for editors

Incomes Data Research conducted its pay planning for 2024 survey in the summer of 2023. The survey gathered information from 120 organisations across the UK about their plans for pay for the new year. Three-quarters of respondents were from the private sector, 12% were in the not-for-profit sector and 13% were in the public sector. Over half (57%) of organisations surveyed recognised a trade union. For enquiries relating to this research, please contact Esther Enyinnaya - estherenyinnaya@incomesdataresearch.co.uk