What is PlusHR’s salary review budget recommendation for 2019?
Marc Bishop – Managing Director & Rewards & Incentive Specialist gives his views in relation to probable salary review budgets for 2019.
Obviously, Brexit (whatever form that might take!) is confusing the short term thinking of many employers at present and hence it is true to say that any certainty around pay review budgets is somewhat difficult to come by at present. However, we hope our views and relevant data shown below assist with your thinking?
External Market and Price data
In September, the Retail Prices Index annual rate of inflation dipped to 3.3% from 3.5% in August. Under the Consumer Prices Index Housing (CPIH), the annual rate of inflation in September edged down to 2.2% from 2.4%.
Meanwhile, the annual rate of inflation under Consumer Prices Index (CPI) was down to 2.4% from 2.7%. This is the rate used by the Bank of England as its inflation target.
Figures for October 2018 are due to be published on 14 November 2018.
In 2018 the UK saw the longest sustained increase in pay awards since 2008, with higher awards particularly noticeable in the manufacturing and public sectors. Within the public sector the lifting of the pay cap saw the highest rises since 2009, while private-sector employers awarded a median 2.5% rise over the past year (up from 2% for the best part of seven years).
Whole economy total labour costs per hour increased by 3.2% in Quarter 2 (Apr to June) 2018 compared with Quarter 2 2017, before inflation is considered. Total labour costs include wages and salaries (including bonuses and arrears), benefits in kind and employer social contributions (pension and National Insurance contributions, sickness, maternity and paternity pay).
The industry with the highest growth in labour costs was chemicals and man-made fibres industry within the manufacturing sector, with labour costs per hour having increased by 12.4% in Quarter 2 (Apr to June) 2018 compared with a year earlier. The Financial and Insurance Services industry year on year growth was 0.69% (Apr to June) 2018 compared with a year earlier.
Consumer Price Index is forecast to fall towards the Bank of England's 2% target until the end of the year, easing the squeeze on households' finances, and house price inflation is seen to average just over 3%, Consumer Price index is expected to stabilise at 2.1% during 2019.
Employers do not expect pay rises to go any higher than that delivered in 2018, the majority of employee groups are predicting a pay rise that will be worth the same amount as the one received over the past year, suggesting that the headline pay award for the coming year will not stray far from the 2.5% median recorded in 2018.
PlusHR would therefore recommend that the employers consider a salary review budget of 2.5% for 2019.