Employers Predict Lower Pay Rises for 2020

Wage growth is expected to slow in the year ahead, according to the latest research from pay analysts XpertHR.

Pay awards over the past year have typically been worth 2.5%, XpertHR’s regular monitoring of settlements has found. However, there is less optimism for the coming year, with a going rate of 2.1% expected to emerge over the next 12 months.

XpertHR’s survey of forecast pay awards for the year running to 31 August 2020 covers the private sector only (due to the central nature of pay award decisions in large parts of the public sector). While the majority (77%) of employees can expect to receive a pay rise, for many (74%) this could be at the same level as over the past year, but no higher.

Private sector employers predict a 2.1% pay award over the coming year – 0.4 percentage points below the level currently being paid. Manufacturing and production employers are slightly more optimistic than private-sector services organisations:

  • Median suffers fall. The median forecast pay award for private-sector employees for the year to the end of August 2020 is 2.1%, down from the 2.5% median increase recorded over the past year.
  • Interquartile range stable. Although the median pay award could move lower over the next year, half of employers continue to predict that their pay award will fall somewhere between 2% and 3%.
  • Most common award remains at 2%. Many employers continue to use 2% as a benchmark pay award, with this figure being the most commonly cited (followed by 3%, then 2.5%).
  • Manufacturing and production. Manufacturing-and-production employers are predicting slightly higher pay awards than elsewhere, with a 2.2% median pay award over the coming year (down from 2.5% in the year to the end of August 2019). The most common award expected is 2%, with half of pay awards falling between 2% to 3%.
  • Private sector services. Employers in the services arm of the private sector are expecting a median pay award of just 2% over the coming year (also down from 2.5% in the year to the end of August 2019). However, in line with elsewhere in the private sector, the most common pay award forecast is 2% and half of pay awards are expected to fall within 2% to 3%.

Labour market issues – including the ability to attract and retain staff, and pay competitively – dominate the factors that are expected to exert upward pressure on pay awards over the coming year; while Brexit and company performance are among the biggest downward drags on settlement levels.

Latest pay award findings

In the three months to the end of September 2019 XpertHR has recorded a 2.5% median basic pay award across the economy. Based on a sample of 90 basic pay awards effective between 1 July and 30 September 2019, we find that:

  • In the three months to the end of September 2019, the median basic pay award is 2.5%, a level that has been consistently maintained since the beginning of the year.
  • Half of all pay awards are worth between 2% and 3%, unchanged since the start of the calendar year.
  • A matched sample analysis shows that there is an almost equal three-way split between pay awards that are the same as (34.6%), higher than (34.6%) and lower than (30.8%) the same employee group received in the previous year.
  • Among the 90 basic pay deals, one in four (25.6%) is worth 2%, making it the most common pay award.
  • Just 7.3% of pay settlements resulted in a nil pay increase in the three months to the end of September.

Over the 12 months to the end of September 2019, the median pay award in the private sector is 2.5%, compared with 2.4% in the public sector.

XpertHR pay and benefits editor Sheila Attwood said:

“Employers’ annual pay reviews are expected to deliver a pay rise to employees over the coming year, but the level of increase could well be lower than we have seen over the past 12 months. While the strong labour market continues to put pressure on employers to raise wages, other costs and an uncertain outlook could well mean lower pay rises for employees.”