According to the latest statistics from the ONS, regular pay has grown at the fastest rate in more than 20 years. However, it is still failing to keep up with inflation, which is at 10.5%.
Pay, excluding bonuses, increased at an annual pace of 6.7% between October and December 2022, which was the strongest growth seen outside of the pandemic.
However, when adjusted for inflation, regular pay fell by 2.5% and the UK's unemployment rate remained unchanged at 3.7%.
Gaps between earnings and outgoings persist
Greg Guilford, CEO of HR Solutions, part of WorkNest, said that while it was positive to see that employers are minimising the impact of the cost-of-living crisis on employees, there is still a gap between the rising costs and employees’ salaries.
“We’re finding that many small business owners might be unable to offer excessive salary increases, as they don’t have the budgets to compete with larger corporations who may be able to offer those higher salaries,” Guilford explained.
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“Employers who struggle to match offers or compete with impressive remuneration packages due to rising costs may instead consider offering shares or employee ownership schemes to help retain staff who would have a new motivation with a vested interest in the company’s financial performance. Incentivising employees to secure new business or upsell to current clients will also help employees to feel engaged whilst increasing profits.”
Guilford went on: “We have also seen many businesses opt for one-off bonuses to help with the cost of living, instead of increasing salaries to protect long-term financials. Businesses should also consider setting up employee engagement groups or sending out an employee survey to determine what their workforce needs. For example, one person might want an increase to their hourly wage, whereas another might be looking for a greater pension contribution or shopping discounts. Another might want to feel heard, need signposting to additional services or want emotional support.
“Businesses need to strike a careful balance between increasing salaries and profitability to ensure the business can weather the storm of potential economic challenges ahead.”
‘Employers must embrace greater flexibility in all jobs to attract and retain key staff'
Jonathan Boys, senior labour market economist for the CIPD, the professional body for HR and people development, commented that employers are struggling to make a match with the right candidates due to the continued imbalance between supply and demand.
“Vacancies, though falling, remain above one million showing demand is still strong, but the right candidates are in short supply,” he said.
“At just 3.7% unemployment remains low so fewer people are available and looking for work. This imbalance is tilting power towards the employees, driving up pay and emboldening industrial action which rocketed to 843,000 days lost to labour disputes in December.
“Pay continues to grow at a slower pace than prices, deepening the cost-of-living crisis. Regular pay growth of 6.7% would normally be a welcome sight for workers but in the face of inflation running at 10.5% this increase won’t stop living standards from falling for most working people.
“When candidates are in short supply and even bumper pay rises can’t compete with inflation, employers need to consider the whole package they offer to staff. The big increases in inactivity which we saw over the pandemic, and which continue restrict labour supply, were driven by people for whom the current world of work does not work. With one in five people being economically inactive, employers need to think about these groups and design better-quality jobs. This includes flexibility in all its guises, not just home working. Flexibility is particularly valued by the over 50s, helping people get into and stay on at work.”
