Payscale Inc., a leading provider of compensation data, software, and services, has released the results of its ninth annual Salary Budget Survey, a key resource for HR and compensation professionals determining pay increase strategies for the upcoming year. The survey results reveal that U.S. employers are budgeting for 3.5% pay raises in 2025.
“Given the stabilization of inflation and the easing of labor market conditions, we’re seeing a slight reduction in planned salary increases for 2025, though figures are still above the 3% pre-pandemic baseline that employees have come to expect,” says Ruth Thomas, chief of research and insights at Payscale. “When we zoom in on different industries and sectors, we observe that raises can vary by up to 1.4%, indicating that labor is in higher demand for some organizations.”
Pay raise growth is on the decline—but slightly more people are set to receive one, the survey finds. Going into 2025, organizations are anticipating pay increases of 3.5% in the U.S. and 3.3% in Canada, a slight drop from 2024. So far, actual pay increases in the U.S. have averaged 3.6%, down from the 4% pay raises observed in 2023. Although rates are declining, 85% of employees will receive a base pay bump this year, compared to 83% last year.
Employees in certain industries will experience rates exceeding 4%, while those in other lines fo work will barely surpass 3%. Government workers and those in the engineering and science fields can expect to see higher-than-average salary increases, averaging 4.5% and 4.2%, respectively. Conversely, retail and customer service employees and those that work in education—including teachers—will see raises of just 3.1%.
While most salary increase budgets remain unchanged, organizations with higher and lower budgets both point to the economy as a main reason for the shift. Just two in 10 organizations anticipate a compensation budget that’s higher than last year’s, and even fewer are expecting a lower budget allocation. Most organizations (66%) expect budgets to stay the same. For those with higher budgets, increased competition for labor was the primary reason, followed by economic performance. For those with reduced salary budgets, outsized increases in years prior and concern about the economy were cited.
“Although perceptions of the current economy are mixed, organizations in a growth phase and those facing headwinds are competing for the same talent,” says Lexi Clarke, chief people officer at Payscale. “Employers must have a compensation strategy built on data to guide their salary increase budgets, or they risk losing top talent this budgeting cycle.”
