A National Insurance Pulse Survey by Towers Watson, a WTW business has found a third (33 per cent) of UK employers have indicated that 2025 planned salary increases have been reduced in light of the announced increase to employer’s national insurance contributions from April 2025.
Of the respondents that have reduced salary increases this year, the salary budget pot fell around 1 per cent, taking planned salary increases for those employers to 3 per cent.
A reduction of salary budget increases isn’t the only action companies are taking in response to the national insurance increases planned for April. Almost half of respondents are looking to make additional HR changes, including plans to increase scrutiny around hiring (41 per cent), making cuts to employee headcount (28 per cent) and implementing a hiring freeze (8 per cent). Other changes include reviewing pension salary sacrifices and reducing non-salary budget rewards.
Overall, salary budgets look to be aligned with current inflation rises. However, as salary increases are not split equally, with high performers and those being promoted receiving a higher portion of the budget, that means other employees will receive a smaller percentage, giving them a below inflation increase.
“We were starting to see salary budget increases moving down towards pre pandemic levels, and the change to the Employer National Insurance contributions has accelerated this,” said Lindsey Clayfield, Senior Director, Work and Rewards at Towers Watson. “We are now seeing salary budgets more aligned to the 3 per cent we last saw in 2019.
“Employers will need to be smart about how they allocate the salary budget increases, ensuring key and high performing talent is being rewarded effectively,” Lindsey added. “Equally, reviewing benefit offerings and non-monetary rewards can help support employee needs, particularly for those that might be affected by below inflation salary increases.”
