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UK firms split on pay awards

A disparity in the percentage value of raises is growing in UK businesses, despite average pay awards remaining steady at 5%, according to new data.

From October through December 2022 the top half of pay rises averaged 8%, while the lower half averaged just 3%, representing a widening disparity in pay rises awarded to UK workers.

In the three-month period to November 2022, the gap between upper and lower halves was one point lower, with each half at 7% and 3% respectively, according to data from XpertHR.

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XpertHR’s data recorded a lower average increase in pay (5%) than Office for National Statistics (ONS) data which recorded an average raise of 6.4% between September and November.

XpertHR predicted a 5% increase in pay would be the the norm in 2023, with both figures representing a real-terms fall in pay.

Phill Brown, head of market intelligence and practice director at employment agency Resource Solutions, told HR magazine: “With inflation rising and real wages falling, employers are faced with a quandary: increase salaries now to ease the cost of living crisis, or wait for further interest rate rises from the Bank of England as it seeks to quash spiralling inflationary pressures.”

Bank of England governor Andrew Bailey told MPs on Monday (16 January) that inflation could fall substantially in 2023 as energy costs ease.

The Bank is also reportedly considering raising rates again to curtail inflation.

The response to the crisis has not been consistent among employers, according to Brown, with some opting to use one-off lump-sum payments for staff rather than more substantial raises, and others committing to inflation-busting raises. 

Resource Solutions’ own placement data from professional roles, where wage inflation is markedly higher than other subsets of the economy, has seen a 20.7% year-on-year increase in average salary.

Brown added: “There also continues to be a disparity between government wage inflation figures and those seen within the private sector."

ONS statistics showed average pay for the private sector soared above public sector, at 7.2% compared with 3.3% between September and November 2022.

Sheila Attwood, XpertHR’s senior data and HR insights manager, told HR magazine that many employers will be deciding between an increase in salary or a one-off payment to staff.

"An additional increase in salary will not only cost the employer every year, it also means that employees see only a small increase in take-home pay each month; in contrast a lump-sum payment is a one-off cost for the employer and gives employees a significant financial boost in one go.

"The employer may have a sense of which will best meet their workers' needs."

Timing will also play a significant part in the decision, she said.

"Few organisations would have been making an annual pay review in the autumn months," she added, "so may have opted for the out-of-cycle intervention to be in the form of a one-off payment at that time.

"Both January and April are popular months for annual pay reviews, so at this time of year employers may decide to add a little extra to the annual salary increase to help with the cost of living.”