Whether you work in HR, Operations, are a business leader, or deal with employees in some other capacity, you’ll understand that pay matters - and it’s an organisational priority to get it right, for a whole host of reasons. Employee retention, for one. And that’s not to mention all the warning signs that come before someone leaves your business (lower productivity, morale, and engagement to name just a few). But there’s also the legal ramifications of not staying up to date with legislation changes… 

As another year draws to a close, it’s time to look ahead at what 2025 has in store. We can’t anticipate everything… but when it comes to compensation, there are some ‘knowns’ and some ‘safe bet’ predictions that you should bear in mind now.

1. Official changes to compensation in the UK

In the UK, 2025 will see several changes to pay legislation come into effect, coinciding with the new tax year in April. Here’s an overview of some of the changes to be aware of:

  • The National Minimum Wage will increase to £7.55 for 16-17-year olds and apprentices, while is an increase of 18%

  • The National Living Wage will increase to £12.21 for those aged 21 or over, and to £10 for 18-20-year-olds - increases of 6.7% and 16.3% respectively

  • NICs will increase to 15% for employers, an increase of 1.2%, and the per-employee threshold at which they have to pay will decrease to £5000 per year

  • Statutory Sick Pay will become a day 1 right for all employees, with no lower earnings eligibility threshold

The impact of these changes will really depend on what industry you’re in - whether you have a significant amount of hourly employees, for example, or a notably young workforce. But there’s always going to be a ripple effect when the NLW wage goes up, so it’s worth being aware of these changes even if you don’t see a direct link.  

2. Pay may start rising above inflation

Times are tight for everyone - employers and employees alike. And it’s been that way for the past few years. In 2022, inflation hit 8.6% - where most businesses set a 5% compensation budget. In 2023, this gap started to close… and now, with the median pay increase budget forecasted to be 3.5% in the coming year and inflation having dropped, we may see pay increasing beyond the rate of inflation. And that hasn’t happened since the pandemic.

Obviously, this will vary on multiple factors. For one, certain industries have deeper pockets and prioritise pay more highly than others. And then there’s the impact of those NLW increases - that 6.7% pay rise might mean roles that fall outside of that band might lose out, as employers are forced to prioritise pay increases based on legal obligation. 

Employers would be wise to keep a close eye on salary benchmarking in their industry, and watch out for those industry-agnostic roles - where top talent could be motivated to move to new sectors, if yours can’t compete on salary. 

3. Pay transparency: not just a ‘nice-to-have’

A good example of new legislation driving pay trends and expectations, the EU Pay Transparency Directive continues to be steering a global move towards transparency - even for the UK, which isn’t directly affected.

Here’s a reminder of what the EU Pay Transparency Directive covers:

What is being asked?

  • Organisations must report their gender pay gap across the whole business, in each category of employees doing the same work, or same value work
  • Organisations must give a salary range in their job advertisements, and they are not allowed to ask prospective hires about their current/past salary
  • Employees are allowed to ask what colleagues doing similar jobs are paid

Who is being asked?

  • Organisations with a minimum of 150 employees must comply to the rules above
  • Organisations with 250+ employees must report their gender pay gap each year
  • Organisations with 150-249 employees must report their gap every three years
  • Organisations with 150+ employees must start reporting for the 2026 calendar year
  • Organisations with 100-149 employees must start reporting for the 2030 calendar year

What are the consequences?

  • If organisations find a pay gap of 5% or more in any group of workers that can’t be “objectively justified” and isn’t rectified after 6 months of reporting, they must do a joint pay assessment
  • If organisations don’t follow the new rules, they will be at increased risk if faced with an equal pay claim by an employee
  • Beyond that, penalties will vary country by country

As the deadline for this is in 2026, organisations will be moving towards meeting these requirements in the following year. And, again, even if it’s not directly relevant to your business, it’s driving a growing demand for pay transparency.

41% of women surveyed said a lack of transparency around pay policies and gender pay gap reporting was a dealbreaker during job offers, for example - with 65% of men also saying they want to see an increase in pay transparency. So why then did a considerable 35% of companies surveyed say they don’t do any kind of pay communication at all? There’s clearly work to do for a lot of organisations when it comes to pay transparency, so consider this in your planning.

How Compensation IQ can support you in the New Year

Make it a New Year’s Resolution to review and reflect your organisation’s pay practices. Because whether you’re dealing with legislation changes or the growing demand for transparency, there are far-reaching consequences. That’s why we’ve created our platform - to make compensation management and salary benchmarking easier for small-to-mid-sized organisations. 

Compensation IQ combines your organisation’s salary data with external market benchmarks, giving you all the information you need to make smarter pay decisions - all in one easy-to-use platform, complete with shareable dashboards and other tools to make collaborating on compensation easier. 

The best part? You can try it for free. We know no-one wants to pay for a piece of HR tech if they don’t know it’s actually going to be useful, so we offer a 7-day free trial. Sign up, see what it’s all about, and get compensation right in 2025.