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Pay Will Rise by 2% in 2017

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Employers in the private sector are planning to award a 2% pay rise to staff over the next year, according to a survey from pay analysts XpertHR. As inflation rises, this will mean that many employees will no longer see a real terms increase in their pay.

The findings come from the 2016 Annual Survey of Hours and Earnings reveals that median gross weekly pay in the private sector rose by 3.4% over the year to April 2016 – up from the 1.6% increase recorded the year before. In the public sector, pay rose by 0.8% over the same period.

XpertHR has also recorded private sector pay awards over the past year at 2%, suggesting that the caution employers have shown recently when it comes to pay rises is going to continue for another year. Employees in the public sector continue to be subject to the Government’s policy of limiting increases to 1% each year.

Over the next year, the majority of pay awards (around six in 10) are expected to be at the same level as paid this year (see chart below). Less than a fifth are expected to be higher.

A 2% pay award has dominated XpertHR’s pay settlement data for several years now, and the next year looks to be no different. Around one-third of pay awards are expected to be at exactly this level – see Chart 2.

By industry, many sectors are also looking at another year of pay awards at 2%. But the construction sector is predicting higher awards, of around 3% (higher than the 2.5% level recorded over the past year); while the not-for-profit sector survey respondents hope to get pay awards up to 1.5% (from 1% over the past year). Sectors including chemicals, utilities, engineering, retail, transport, and professional services, are all predicting pay awards of 2% over the next year.

The key benchmark for employees is how movement in their pay compares with inflation. For the past couple of years (since December 2014) pay awards had been delivering a real terms increase – that is, inflation was increasing at a slower rate than pay. But on the latest data, RPI inflation rose to 2%, which is the same as our pay award forecast, and our measure of the latest pay awards in the private sector. As inflation is forecast to continue rising, there’s a very good chance that employees will soon see prices rising quicker than their pay.

Latest pay award findings

In the three months to the end of September 2016, XpertHR’s has recorded a 1.7% median basic pay award across the economy. This represents a dip from the 2% figure seen recently, but can be accounted for by our current sample containing a higher proportion of public-sector deals as many settle at this time of year – and these are typically at a lower level than across the private sector. In the private sector, the median pay award is 2%.

Based on a sample of 82 basic pay awards effective between 1 July and 30 September 2016, we find that:

  • The median pay award across the whole economy is 1.7%, with the middle half of pay awards (the interquartile range) worth between 1% and 2%.
  • Almost half (47.8%) of pay awards are lower than the award received by the same group of employees last year. Around a fifth (18.2%) are higher, with the remaining 34.5% at the same level.
  • Within the private sector, the 2% figure is recorded for pay awards in both manufacturing-and-production organisations and in private-sector services.

Over the 12 months to the end of September 2016, the median pay award in the private sector is 2%, compared with 1% in the public sector.

XpertHR pay and benefits editor Sheila Attwood said:

“Employers expect to give their employees a 2% pay rise over the next year. As inflation is now at this level and expected to rise, for employees this seems to signal the end of the almost two-year run of real terms increases in pay.

“Employers will also need to factor in the April 2017 increases to the national living wage and national minimum wage; and the introduction of gender pay gap reporting, which may lead some employers to measures in place to address any gender pay gap.”