Employers plan record pay rises in 2022 as recruitment problems continue

Workers in the UK are in line for record pay rises this year as conditions in the labour market remain squeezed.

Pay is set to increase by an average of 3% to help combat recruitment and retention challenges -- but will still struggle to keep pace with inflation.

More than 1,000 UK employers were surveyed about their hiring, pay and redundancy intentions for the latest quarterly Labour Market Outlook from the CIPD, the professional body for HR and people development.

Expected pay awards in the 12 months to December 2022 are the highest since the survey was first conducted using current methods in winter 2012/13.

Recruitment

Over two thirds (70%) of employers said that they planned to recruit in the next three months and just one in ten (11%) planned to make redundancies. Redundancy intentions are below pre-pandemic levels (16% in winter 2019/20) as employers seek to stem the flow of workers out of their organisation.

Almost half (46%) of employers reported having vacancies that are hard to fill. Two thirds of employers (64%) anticipated problems filling vacancies in the next six months, with one third (33%) expecting these problems to be 'significant'.

In response to recruitment challenges, in the past six months almost half (48%) of employers with hard-to-fill vacancies have increased wages to attract new hires and 46% of employers have advertised more jobs as flexible.

Retention

There is also a clear focus on workforce retention, the CIPD found. Two fifths of employers (41%) reported increased employee turnover or difficulty with retaining people over the last six months. To address this, almost half (46%) of employers with retention difficulties have raised the pay of their existing employees in the last six months and 40% planned to raise pay in the future.

Other responses to retention difficulties in the past six months included improved flexible working arrangements, implemented by almost half of employers (48%), as well as focusing more on employee wellbeing (45%) and increasing investment in training and development (36%).

Cost of living

With the cost of living continuing to rise, planned pay increases are unlikely to leave people feeling better off. A recent report from the Resolution Foundation think tank said that the war in Ukraine is forecast to further push up energy prices and wider inflation (to over 8% this spring), causing typical household incomes to fall by 4% in the coming financial year (2022-23), the sharpest fall since the mid-1970s.

"Even though businesses anticipate making record pay awards to their employees this year, most people are set to see their real wages fall against the backdrop of high inflation," said Jonathan Boys, labour market economist for the CIPD.

"What is encouraging is that more employers are looking beyond pay increases to help attract and retain staff by providing more flexible working opportunities and investing in more training and development, as well as taking steps to support employee health and wellbeing. Together these practices can broaden the range of candidates employers can attract and may also reduce the need to recruit more staff, which should reduce wage inflation pressure to a degree."