Labor & Employment Law Daily Wrap Up, REPORTS—Most U.S. employers not budging on budgets, salary increases remain flat, (Jul 22, 2025)

By WK Editorial Staff

Despite stable pay increases, employees are staying put; fewer organizations this year have found employee stability challenging compared to the past two years.

Average salary increase budgets for US companies in 2026 are expected to remain stable at 3.5 percent, matching 2025’s actual increases. This is according to the latest Salary Budget Planning Report by WTW.

Three out of five organizations saw their salary budgets change in the last pay cycle. More than half (53 percent) of these organizations reported no change between their anticipated and actual pay budgets in 2025. For the nearly one-third (31 percent) of these organizations that are projecting lower salary increase budgets than last year, the most common reasons cited are an anticipated recession or weaker financial results (51 percent) and concerns related to cost management (45 percent). Tight labor markets (59 percent) and inflationary pressures (30 percent) are the most commonly cited reasons for change among the relatively few organizations that are projecting higher salary increase budgets.

“While top-line budgets are generally holding steady, the real shift is happening beneath the surface. Organizations are being more deliberate about how they allocate pay, where they focus investment and what outcomes they expect to drive. Employers are no longer simply reacting to economic signals; they’re reimagining how to best support broader business goals despite uncertainty,” said Brittany Innes, director, Rewards Data Intelligence.

Despite stable pay increases, employees are staying put. Fewer organizations this year have found employee stability challenging compared to the past two years. Less than one-third of organizations (30 percent) report difficulty attracting or retaining employees, representing a decrease of 11 percentage points since 2023.

In response to market conditions in which turnover is relatively low and burnout and disengagement remains a concern, organizations have taken a number of actions to support their workforce, including improving the employee experience (47 percent), enhancing health and wellness benefits (43 percent) and increasing training opportunities (40 percent).

Additionally, employers are adjusting compensation programs to address the competitive labor market and inflationary pressures. These actions have included conducting a compensation review of all employees (50 percent), performing a compensation review of specific employee groups (48 percent), hiring people higher in relevant salary ranges (45 percent) and raising starting salary ranges (40 percent). Over two-fifths of organizations (43 percent) have enhanced their use of retention bonuses or spot awards and 37 percent have targeted base salary increases for specific employee groups.

As organizations focus on these efforts, they continue to wrestle with higher annual payroll expenses. The average annual payroll expense increased by nearly four percent, and seven in 10 organizations report total annual payroll expenses higher than last year.

“As employers navigate continued economic uncertainty, ongoing increases in labor costs and the changing needs and expectations of employees, they are positioning themselves for what is to come and making investments in their workforces that go beyond pay raises. These include career development, wellbeing, flexibility and equity—because these are critical for performance, retention and resilience in a shifting market,” said Lori Wisper, managing director, Work & Rewards.

News: Reports Surveys PensionBenefitPlans WageHour EconomicNews IndustryNewsTrends