Average Pay Rise UK

Average Pay Rises in the UK: The Collected Guide

The cost of living crisis is impacting workers across the UK and for most the average pay rise is not enough to keep up with increased costs. However, with three out of four employees considering a job change due to the economic environment, employers cannot ignore this issue.

This guide to average pay rises in the UK will help you understand what your employees expect, see the link between pay rises and retention and decide whether you should offer an inflation rise in 2023.

What is a salary increase?

A raise is an increase in the wage or salary an employee receives for working at a company. The company may grant a wage increase for various reasons and in different ways (e.g. salary, bonus, etc.).

Salary increases have a positive impact on the employee’s net salary and overall purchasing power and can promote engagement, productivity and employee retention.

When does a salary increase usually occur?

The circumstances under which a salary increase occurs usually vary. An employee may receive a raise when they perform exceptionally well, when they are promoted, when their responsibilities increase, when the company changes, or when economic conditions change (e.g. in an inflationary environment like we will have in 2023 experience).

However, salary increases most often occur during a performance cycle or when there are major changes in a company.

What was the average pay rise in the UK?

According to the Office for National Statistics (ONS), the median monthly wage in the UK was an estimated £2,113 in August 2022, up 6.5% compared to the same period in 2021.

There are a number of more detailed statistics that are also helpful:

• The average regular wage growth from June to August 2022 was 6.2% in the private sector and 2.2% in the public sector.

• Aside from the peak of the coronavirus pandemic, this is the biggest gain for the private sector and the biggest difference between the private and public sectors.

• Bonus payments are higher compared to previous periods, especially in March 2022. Who will receive the highest bonus payments? Those employed in the financial and business services sectors.

A January 2022 survey found that more than 80% of employers planned a salary review in 2022. 40% expected an increase in basic salary, 7% expected a wage freeze and 1% expected a decrease.

Clearly, the events and economic conditions of 2022 have caused employers to think critically about wage increases and what they can afford for their employees.

Will there be an increase in inflation in 2023?

Whether there will be a wage increase due to inflation in 2023 depends on the individual organization, but it is clear that most wage increases this year did not match or exceed inflation.

The real (inflation-adjusted) increase in total and regular salaries decreased in the June-August 2022 period compared to the previous year: 2.4% for total salaries and 2.9% for regular salaries.

This is down slightly from the record 3.0% decline in real wages in the April-June period, but still one of the largest declines in growth since records began in 2001.

The widening gap between nominal and real wage growth rates is due to rising consumer price inflation, including owner-occupier housing costs (CPIH).

In the period June to August 2022, the UK CPIH averaged 8.5% – so this is a real concern for UK residents and workers.

What is the connection between salary increases and employee retention?

Research has shown that there is a direct connection between higher pay (and raises) and higher employee retention. A study by Harvard University in the United States found that a $1 per hour wage increase for warehouse workers led to a 2.8% increase in employee retention, while a $1 per hour decrease resulted in a 28% increase in turnover led.

In recent years, employee power has reached some peaks, and although employers now have more power as hiring declines, retaining employees is still a challenge.

The CIPD (Chartered Institute of Personnel and Development) publishes a quarterly labor market outlook, which revealed that 46% of employers struggling to retain staff have increased staff wages in the last six months.

Should your company adopt a policy of increasing salaries with inflation?

Every company is different, and the decision as to whether you should introduce an inflation increase in 2023 depends on the economic situation of your company, the development of your industry and the wishes of your employees.

However, keep in mind that not investing in your employees and increasing their wages as they struggle with the cost of living crisis could have an immediate negative impact on your business. As previously mentioned, three in four UK workers are considering changing jobs due to rising costs. So a raise can help retain your employees and save you from an expensive staffing crisis.

Regardless of whether employers plan for a post-inflation pay increase or not, many employees feel that their compensation is lagging behind inflation, prompting companies to prepare for a large influx of raise requests.

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