- Salary increase budgets are generally contracting. Payscale’s Salary Budget Survey showed actual pay increases in 2024 are 3.6% on average compared to 4% last year, indicating annual raises are softening in a cooler labor market.
- Employees in some industries will fare better than others. The report projects that while employees in science, engineering and government will experience salary bumps greater than 4%, those who work in retail, customer service and education will see smaller increases of just 3.1%.
- Several factors impacting budgets. Organizations that cited their salary budgets have increased attribute it to continued competition for talent or labor shortages while those with reduced budgets claim to be offsetting prior wage increases as a leading reason.
U.S.-based employers are budgeting 3.5% average pay raises for their employees for 2025, slightly less than the 3.6% actual increases doled out in 2024, according to the results of Payscale’s ninth annual Salary Budget Survey, which was released July 31.
Last year’s Payscale report showed a 3.8% U.S. forecast for 2024, which was less than the 4% average actual pay increase for 2023.
Payscale surveyed 1,550 organizations in the U.S., Canada and 14 other international locations for its new report. This is the third salary budget survey to be released recently, following reports by WorldatWork and WTW. In general, the results from these reports point to generally contracting salary increase budgets in the U.S. and around the world. WorldatWork forecast 3.8% mean U.S. salary increase budgets for 2025 and WTW forecast 3.9% median U.S. increases.
Access top-level results from WorldatWork’s 2024-2025 report now. The full report — covering base salary increases and merit budgets for 22 countries and in-depth salary budget insights for the U.S., Canada, India and the United Kingdom — is also available for purchase. Report purchase also provides access to the U.S./Canada Online Reporting Tool to build customized reports based on industry, organization size and/or geographic area.
Payscale stated that although pay increase rates are declining in the U.S. and many other countries (e.g., its report showed Canada employers forecast 2025 increases of 3.3%, compared to 3.4% actual increases in 2024), the new report showed 85% of workers will receive a base pay bump this year, compared to 83% last year.
“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, a research and insights leader and pay equity strategist 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.”
The Highs and Lows by Industry
The Payscale report showed employees in certain industries will experience raises exceeding 4%, while those in other lines of work will barely surpass 3%. Government workers and those in the engineering and science fields can anticipate higher-than-average salary increases, averaging 4.5% and 4.2%, respectively. Conversely, retail and customer service employees and those that work in education — including teachers — will likely see raises of just 3.1%, falling below the standard for most industries.
Economy Remains a Primary Budget Driver
Payscale’s study found that while most surveyed organizations (66%) anticipate their compensation budget will remain the same, those that forecast an increased budget or a decreased budget generally pointed to economic factors as the core reasons for a shift.
Webinar: Dive into the Future: Salary Budget Planning for the Year Ahead
For those with higher budgets, increased competition for labor was the primary reason cited, followed by improved economic performance. For those with reduced salary budgets, outsized increases in years prior and concern about the economy were cited.
“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, the chief people officer at Payscale. “Employers must have a compensation strategy built on data to guide their salary increase budgets or they risk losing top talent this budgeting cycle.”
Editor’s Note: Additional Content
For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics:
