- By Check-a-Salary
- Posted Wednesday 19
th January 2022
A pay rise is something current employees look forward to each year. However, high wage growth is not guaranteed and in previous years, and across specific industries, we have seen employees, including experienced workers, endure a pay freeze. So, is the average salary set to increase in 2022?
A 3% pay rise is predicted for UK workers
Business confidence is on the increase as we emerge from the latest fluctuation in COVID-19 cases. Data suggests that the UK’s average salary is predicted to increase by 3%, which equates to a 0.4% pay rise in 2022 when the cost of living adjustments and inflation are factored in.
According to the latest Salary Trends Report from ECA International, the overall wage growth for employees will be approximately £127 for the year, before taxation.
Conversely, in a conversation between the ONS and the BBC, the Office of National Statistics conveyed that their figures show pay rises are failing to keep pace with higher prices for goods and services, predicting that inflation is expected to reach 6% by Spring.
Chancellor Rishi Sunak described wage growth as relatively healthy but acknowledged the current challenges of high inflation.
Wage growth dramatically accelerated compared to 2021
UK businesses are looking to raise wages faster compared to 2021. In 2021, the average salary increase was 2.4%, although, at the time, the average UK salary was only predicted to see a rise of 1.3%.
According to Oliver Browne, the Remuneration Manager at ECA International, there is a positive overall outlook from employers. However, he stated that "uncertainty remains as we continue to live with the pandemic, increased energy costs and supply chain issues that could impact businesses and employees in the year ahead."
How are real average salaries calculated?
The current real salary increase depends on inflation and the consumer price index (higher product prices). With inflation falling and inflation slowing in the UK, the typical raise will be better for workers. With spiking inflation, the effect of salary averages increasing will be felt less in the individual's pocket.
European salary increases outperform the UK's
The IMF has indicated that it expects to see a real pay increase of 0.9% across Europe. If this forecast is accurate, then there will be a faster wage growth in Europe, compared to UK salaries.
Pay freezes are declining
16% of UK companies instigated a pay freeze during the past year, effectively causing pay compression. However, this year, UK businesses expect better things with a more optimistic outlook existing for 2022. In fact, 2021 was significantly better than 2020, when 35% of UK companies decided to freeze pay.
Why are companies awarding pay rises?
The successful Coronavirus vaccination rollout in the UK and other rich nations is giving more companies rising confidence to not freeze salaries and raise their current payroll on par with pre-pandemic levels.
According to employers surveyed, productivity was unexpectedly up, helping to create a positive outlook, job openings, and raised salaries.
Who will benefit most from rising wages?
With a tight labour market, those who switched jobs in 2021 benefited most with a distinct pay advantage. However, new hires and those taking advantage of job openings will not benefit from pay rises in the way they did. In 2022, the rise in UK average wage will go to experienced workers rather than new hires.
The contributing factor to more experienced workers seeing a wage acceleration is to increase their pay to keep it in line with the salaries offered to new hires.
Salary increase budgets to be the highest since 2008
Entry-level new hires to executives should expect to find themselves in a higher paying job as living and salary markets improve during 2022. Comparing the predicted salary increases to all previous years, experts expect to see a wage-price spiral more significant than the sharpest rise on record, which occurred in 2008.
Salary structure movements for staff retention
With many current employees jumping ship to get a salary increase and with more job openings than people to fill them, raised salaries are the first approach businesses will leverage to retain staff.
Professionals who changed jobs in 2021 benefited from a salary increase in excess of 5%. Therefore, businesses will need to raise wages significantly if they intend to retain their top talent.
High staff turnover
Staff turnover is exceptionally high in business sectors where jobs are considered essential work and roles are in-person. Whether it is manual services jobs, healthcare, or businesses affected by supply chain issues, a salary increase remains the most effective approach to lower staff turnover.
Businesses pass on increasing salary budgets to consumers
With salary increase budgets swelling, it is inevitable that businesses will pass on their increasing wage costs to consumers. Many UK companies initiated higher service and product prices in 2021, and as salary increases remain elevated, we should expect to see the same in 2022.
Minimum average wage UK
The National Minimum Wage will go up in 2022, with a salary increase to £9.50 per hour for people over 23 (previously £8.91 per hour). A salary increase will also benefit younger workers.
Minimum living wage rates by age bracket:
- Aged 23 and over: £9.50 per hour
- 21 and 22-year-olds: £9.18 per hour
- 18 to 20-year-olds: £6.83 per hour
- Under 18-year-olds: £4.81 per hour
- Apprentice rate: £4.81 per hour
These rates are in line with the Low Pay Commission's recommendations. It is crucial for businesses to administer the salary increase as stipulated here to avoid appearing on the government's breaches list, which can severely damage a company's reputation.
Are you working in one of the lowest paid jobs?
Find out if you are working for minimum wage or one of the UK's lowest-paid jobs.
Pay planning tips for your Remuneration Manager
Even with a positive outlook, careful pay planning for salary increase budgets will be required. When considering salary increase budgets, we recommend:
Prioritising hourly pay
Focus on an hourly pay strategy to reduce employee churn rates and remain on a level playing field with the current wage growth.
Managing the employer experience
Provide your leadership team with the resources they need to communicate wage decisions effectively. Workers always have high pay expectations, and the topic needs to be handled sensitively as many employees feel burned out and exhausted due to the pandemic. Consider how you can support your workforce with more compelling roles and flexible working environments.
Implementing a segmented approach
To effectively manage your salary increase budgets, you may need to introduce a segmented approach rather than a broad pay rise across the board. Focus on bringing up the wages of workers earning below-market rates, as well as the pay rates of new hires and high performers.
How to negotiate a higher salary
If you are looking to get a higher salary from your employer, or a new one, here's how to negotiate a pay increase.
Quote your skills, not rising inflation
Although spiking inflation is an entirely just reason for pay rises, it is unlikely to motivate your employer into giving you a pay increase. Instead, focus on your abilities and achievements. Talk about who you are and what you and your boss are going to be able to achieve together.
Promote your value
If you are seeking more than a typical raise, you need to base your conversation on the value of your work and not on your rising external costs. If you mention rising prices, you plant the seed in your employer's mind to think about the increasing costs for materials and running their business, which is unlikely to motivate them to increase their wage costs.
Research your role's average salary
Salary benchmarking is the foundation of securing fairer compensation. It would be best to investigate the lower, average, and higher salary range for people working in your role and in a similar industry.
Further pay insights may be gathered by reaching out to professional contacts and sounding out whether your salary expectations are reasonable. If you are entering your first salary negotiations with the company, ask other employers how salary negotiations are handled.
Be prepared to take another job offer
If you stuck with your company through the difficult times of last year and were successful in your role, you should be in a position to ask for this commitment and success to be reflected in your pay rise. It is also an opportunity to negotiate other benefits, aside from salary. Maybe you would prefer to have more paid leave or a continuation of flexible working practices, such as working from home or flexible hours.
However, some companies only award pay rises to those employees that secure another job offer. You may need to follow this path, although it is rarely a beneficial concept for employee-employer relationships.
Practice delivering your wage increase request
Just like any business meeting, negotiation, or pitch, practice is crucial to delivering success. It will help you make a convincing case for a pay rise if you practice verbalising your request with a trusted friend or mentor.
The feedback will help you develop a stronger case and prepare you for answering unexpected questions. Run through your speech several times to help boost your confidence and perfect delivery.
Do higher wages push up inflation?
There is a circular effect of rising wages pushing up inflation. Wage Push Inflation occurs when salary increase budgets rise, as corporations need to raise the cost of products and services to maintain profitability.
If a company is part of a quickly growing industry, then higher wages are often used to incentivise business growth and attract the best talent. A pay rise for new hires also feeds Wage Push Inflation.
Pay rise FAQs
Here we answer your pay and salary increase questions.
When does the minimum UK wage increase?
The UK national minimum pay rates will increase on the 1st April 2022.
Are wages going up in 2022?
Pay rises are on the cards for most employees as business confidence and a positive outlook returns, even as the current pandemic continues. Rich nations played a significant role in global salary increases in 2021, and in 2022 the success of the vaccination program is further boosting business confidence.
Is a 5% raise every year good?
A pay and salary increase of 5% every year can only be viewed as good if inflation is less than 5%. How salary increases affect people directly correlates to the consumer price index and inflation. It is a delicate balancing act because rising wages feed inflation.
How do I negotiate a better wage?
Avoid discussing inflation or rising living costs. Instead, focus pay discussions on your abilities, skills, and successes. If all else fails, be prepared to get another job offer and take it if needs be.
What are the 2022 National Living Wage rates?
If you are aged 23, and over, you should earn at least £9.50 per hour. 21 and 22-year-olds should earn £9.18 per hour, with 18 to 20-year-olds making £6.83 per hour. If you are under 18 years old or on an apprentice rate, you should earn at least £4.81 per hour.
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