Despite the fall in inflation, many people are still experiencing the effects of the cost of living crisis. As the UK economy and fiscal challenges preoccupy business leaders and employees, it’s crucial for employers to prioritise their people’s needs throughout the year.

The current economy and pay settlement forecasts

Over the past few years, pay awards have not kept pace with high inflation levels, resulting in a real-time decrease in pay for many.

However, the current inflation rate has been slowly falling to 3.2% as of March 2024. According to the Office for National Statistics (ONS), it will fall further to the government’s 2% target during 2025. This is encouraging news, although many had hoped for a faster fall in inflation. Therefore, any decrease in interest rates is likely to be delayed until later in 2024.

In 2023, the UK saw a median pay award of approximately 5-6%, according to various sources, including the ONS. Looking ahead, forecasts for 2024 suggest a lower median award of approximately 4% for the year. However, this varies by sector, with the private sector faring slightly better than the public sector.*

*Sources: BrightMine’s Forecasts for pay awards 2024, and CIPD’s Labour Market Outlook Winter 2023-2024.

The National Minimum Wage and Living Wage

In April 2024, we also saw an increase in minimum wage levels in the UK, pushing up rates for the lowest-paid workers. This was particularly significant this year due to the lowering of the threshold for the higher rate National Living Wage to those aged 21 and over. This is great news for workers, but it places further pay pressures on employers who must then review overall salaries to make sure everyone’s pay is correct.

The employment market

The CIPD’s Labour Market Outlook indicates a decrease in the number of vacancies for the 18th consecutive month. It also confirms that a significant 18% of employers planned to reduce employee numbers this year.

Clearly, employers continue to make difficult decisions around hiring and are reducing labour where necessary. In these situations, it’s important for employers to follow a fair and compliant process.

This benefits themselves, the employees at risk, and those who remain.

HR top tip: when you are delivering potentially bad news, remember to communicate clearly and consistently as this helps the affected employees feel well informed.

Employers supporting employees

When employers provide support to employees, it enforces a positive culture. It nurtures engagement and helps reduce the likelihood that key team members might be tempted to look for a higher salary elsewhere.

The CIPD Good Work Index survey 2024 reveals that 50% of employees continue to struggle with bills and credit commitments. Employers can support their teams in many ways. They can do this not only with financial information, but also with a focus on wellness and engagement. This is essential for employees to feel valued and resist the temptation to look elsewhere.

Here are just a few examples that align with CIPD recommendations:

• offer proactive support, such as helping to understand the economy and managing a household budget;
• remind employees of any Employee Assistance Programme (EAP) in place and the many valuable services it offers;
• recognise the value of wellness in addition to financial benefits;
• point to external sources of information;
• review the benefits package to ensure what is in place is valued by employees, and consider if there are other benefits that may be more highly valued;
• think about introducing flexible benefits to cater to different people’s needs. For example, a single person with no dependents is likely to opt for different benefits than a parent with multiple dependents;
• consider ‘on-demand pay’ and wage streaming platforms, which are increasingly popular in some sectors such as hospitality. If the competition is already doing this, is this something your organisation wants to provide to remain competitive; and
• where possible, define a route to progression. For example, define a career pathway including training and development opportunities. Progression doesn’t need to mean promotion, it could mean a secondment to a different department, region or possibly a different country if your organisation is international.

If you need support with defining your total reward and people plans this year, or advice and guidance regarding change management programmes or wellbeing initiatives, our experienced HR consultancy team is here to help. Please contact Kerri Constable or your usual RSM contact for further assistance.