U.S. Employers Forecast 3.5% Pay Increases in 2025

• Actual pay increases in 2024 are 3.6% on average compared to 4% last year, indicating that annual raises are softening in a cooler labor market.
• While employees in science, engineering, and government will experience salary bumps over 4%, those who work in retail, customer service, and education will see smaller increases of just 3.1%.
• Organizations citing that their salary budgets have increased attribute it to continued competition for talent or labor shortages while those with reduced budgets claim to be offsetting prior wage increases as the leading reason.

Payscale Inc., the leading provider of compensation data, software and services, 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.-based employers are budgeting for 3.5% raises for 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,” said Ruth Thomas, Chief, Research & 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.”

Key insights for 2025 pay increases:

Pay raise growth is on the decline — but slightly more people are set to receive one.

• Going into 2025, organizations are anticipating pay increases of 3.5% in the U.S. and 3.3% in Canada, a slight drop from actual raises this year.
• So far in 2024, actual pay increases in the U.S. have averaged 3.6%, down from the 4% raises observed in 2023.
• Although pay increase 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 raises exceeding 4%, while those in other lines of 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%, falling below the standard for most industries.

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 ten organizations anticipate a compensation budget that’s higher than last year’s, and even fewer are expecting a lower budget allocation. The majority of organizations (66%) expect budgets to stay the same.
• For those with higher budgets, increased competition for labor was the primary reason, followed by improved 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,” said 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.”

The Salary Budget Survey collected pay increase budget projections directly from compensation professionals at 1,550 organizations in the U.S., Canada, and 14 other international locations between April and June 2024.