With the new year only a few months away, it’s an ideal moment to evaluate your current compensation strategy, look at coming trends, and make strategic decisions for the year ahead. Kaizen is here to ensure you have the information you need – so we’re sharing four of the biggest trends we’re focused on for 2025 salary and benefits planning.
More Restrained Salary Budgets
As you might expect, salary budgets are top of mind for organizations as they plan for 2025. According to multiple polls, salary increases will likely be smaller next year but still at a very healthy level.
For instance, Forbes shared a poll of over 1,800 U.S. companies by WTW that found an average employee will likely receive a pay raise of 4.1% in 2025. While this represents a lower number than the last couple of years in the hot labor market, it’s still a strong showing. Plus, actual hourly earnings remain strong, meaning employees have more buying power compared to a year ago.
The same study also found that 47% of U.S. organizations expect their salary budgets to shrink in 2025. What’s behind this shift? The job market has finally cooled from historic highs, returning to a more balanced outlook. With a more competitive job market and without the panic of filling too many open roles, companies are pulling back on higher salaries and signing bonuses.
Payscale, meanwhile, predicts average salary raises of 3.5% in 2025. For comparison, their annual salary budget survey found that actual (not predicted) salary increase rates in 2024 were 3.6% and 4% in 2023. 66% of employers surveyed also said that their salary increase budgets will likely remain about the same as they were in 2024, while 19% say they expect increased budgets, and 15% expect them to shrink.
More Focus on Employee Well-Being
2025 is likely to be another year where employee well-being takes center stage. As reported by SHRM, a McKinsey survey found that 83% of executives say they expect to hire more people in health and safety-related roles – in fact, that’s the area likely to see the most hiring increases. Well-being remains a top priority for employers and employees alike, and related benefits are likely to make a strong showing in 2025.
Additionally, Mercer reports that the total health benefit costs per employee are expected to rise 5.8% on average in 2025. This increase is due to a number of factors, but prescription drug spending appears to be the single largest source. Cost-reduction measures and changes in government policy could impact the level of increased spending, but we expect health benefits will expand in both scope and cost in 2025.
Health-related benefits are likely to expand beyond physical health, too. The stressful events of the last few years have led to increased anxiety and stress across demographics, so it’s not surprising that SHRM also reports that 72% of companies intend to improve their mental health benefits in 2025. These benefits may include expanded employee assistance programs, better access to counselors, lower copays, and even self-help tools to help employees manage their stress, focus, and spot others in distress.
New Voluntary Benefits
Beyond the traditional items like health insurance and retirement contributions, voluntary and “extended” benefits are making a big showing. One study found that 67% of employers intend to offer more voluntary benefit choices, and 63% of employees say they would consider changing jobs to get better benefits options.
For instance, 68% of employers in the survey above said that they now offer legal plans and services as part of their benefits. This includes basic assistance for common documents like wills and trusts, but they also may expand to legal assistance for name changes, surrogacy and reproductive assistance, and adoption. Similarly, cybersecurity protections are an area of increased interest for today’s employees, leading to employers offering services like ID theft protection, cybersecurity training, and more.
The 2024 General Election
Of course, any discussions about 2025 predictions must acknowledge that the outcome of the 2024 general election will undoubtedly impact the American and global economic situation. Business
It’s impossible to talk about 2025 predictions without acknowledging that, depending on the outcome of the 2024 U.S. general election, the American (and global) economic outlook could be very different. Issues like tax cuts, business tax credits, tariffs, minimum wage levels, and other business incentives are inextricably linked to the policy priorities of the incoming Congress and presidential administration.
Even some of the most talked-about benefits are likely to be part of the political conversation. Topics like family leave, reproductive health care, mental health, and drug prices are all part of the political and policy playbook. The results of the election are likely to impact critical priorities in these areas in the future and, in turn, how organizations’ strategies evolve to address them. It’s impossible to predict the outcome of the election, so it’s wise to begin crafting a plan in place either way.
Kaizen is here to help you navigate the changes of 2025 and beyond! Our team is constantly keeping an eye on trends in compensation, benefits, hiring, and much more. Contact us to learn more about how our turnkey recruiting solutions can support your strategy.
By Rose Dorta
Are you a high-performing leader or believe you have the potential to tackle a more challenging role? Would you be interested in career opportunities that are seeking these attributes?
I’d love to chat with you and answer any questions that you have. Email me, Rose Dorta, Managing Director of Kaizen HR Solutions, here.
