By Andy Medici
Companies are dialing back pay raises in 2025, an expected outcome of a continually cooling labor market.
That means workers should expect, on average, 3.5% pay increases in 2025 compared to the average 3.6% seen so far in 2024, according to the latest Payscale Salary Budget survey. Those are both down from the 4% average pay raise in 2023.
The biggest salary bumps will go toward those in science, engineering and government, while those in retail, customer service and education will see the smallest average pay increases. Most employees are expected to still get a pay raise of some kind in 2024 — about 85% compared to about 83% in 2023, according to Payscale.
“Given the stabilization of inflation and the easing of labor market conditions, we’re seeing a slight reduction in planned salary increases for 2025, though figures are still above the 3% pre-pandemic baseline that employees have come to expect,” said Ruth Thomas, chief of research and insights at Payscale. “When we zoom in on different industries and sectors, we observe that raises can vary by up to 1.4%, indicating that labor is in higher demand for some organizations.”
About 15% of companies surveyed say their salary budget will be lower next year than in 2024, compared to about 19% of companies expecting higher budgets. The rest estimate those budgets will remain about the same next year.
For those whose budgets will drop in 2025, the biggest reasons cited were prior salary increases being higher than usual and overall concern about the future of the economy and their business specifically. Just 14% cited reduced competition for labor.
Among the companies that said their salary budgets would grow in 2025, more than half cited increased competition for labor.
“Although perceptions of the current economy are mixed, organizations in a growth phase and those facing headwinds are competing for the same talent,” said Lexi Clarke, chief people officer at Payscale, in a news release. “Employers must have a compensation strategy built on data to guide their salary increase budgets, or they risk losing top talent this budgeting cycle.”
Salary budgets are lower across the board
Overall, there was little difference in planned salary increases between worker levels. Officers and executives are set to see a 3.4% average salary increase in 2025, compared to 3.6% for managers and 3.5% for rank-and-file employees, according to the survey.
There are slight differences by company size, however. Employees at companies with 100 to 1,999 workers are set to see an average boost of 3.8% in 2025. That’s compared to 3.6% for companies with 2,000 to 4,999 employees, 3.3% for companies with 5,000 to 15,000 employees, and 3.4% for companies with more than 15,000.
Other surveys show roughly the same trend — that companies are shelling out less for pay raises in 2024 and 2025 than than they did in 2023.
About 47% of American companies surveyed by advisory and consulting firm WTW said their salary budgets for 2024 are lower than the previous year, with the median pay raise dropping from 4.5% in 2023 to 4.1% this year.
The drop in salary budgets comes as the labor market has cooled substantially. Just 38% of employers said they had trouble attracting and retaining talent, down from 57% a year ago. Meanwhile, companies in that survey said they expected their salary budgets to grow by 3.9% in 2025, lower than the previous two years but still higher than pre-pandemic norms, according to WTW.
A report from professional-services firm Mercer found annual merit increase budgets have grown by 3.3% so far in 2024, below the 3.5% increase companies in November had projected for 2024. Total salary budgets have grown by 3.6% — also below the 3.8% companies had expected previously, according to Mercer’s most recent US Compensation Planning Survey.
The Mercer data shows companies are still offering “off-cycle” pay increases on an as-needed basis, with 62% of employers saying they are increasing pay at off times, compared to 52% in November.
High-paid jobs are surging even as remote work slips
High-paying remote jobs have tumbled in recent months after hitting a high during the Covid-19 pandemic. But new data suggests that decline may have hit the floor — and six-figure jobs overall are surging despite the softening labor market.
An analysis of half a million job postings on Ladders.com between April and June found the share of six-figure remote jobs grew about 7% in the second quarter compared to the prior three-month period, accounting for 9% of the $100,000-per-year jobs available. In-office six-figure jobs still dominate the landscape, accounting for about 88.26% of high-paying roles on Ladders.
The number of total six-figure jobs jumped by 20% in the second quarter of 2024, according to the Ladders data. That’s a sign of a rebounding economy and new investment in growth by businesses that require higher-paid roles.
Much of the growth in high-paying job postings is being driven by health care. Physician-assistant jobs surged 550% over the last quarter and nurse-practitioner positions grew by 260%.