Small businesses expect to increase pay by 3% next year

By Timothy Adler on Small Business - Advice and Ideas for UK Small Businesses and SMEs

Small business owners should brace themselves to pay staff on average 3 per cent more in 2022, as employers face a shortage in staff.

Hospitality businesses are particularly badly affected with staff shortages due to the double whammy of Brexit and Covid.

Employers plan to increase pay by an average of 2.9 per cent next year, according to a survey by advisory, broking and solutions company Willis Towers Watson. That would bring pay growth back to a level not hit since 2019 when wages were at last beginning to rise after a decade.

>See also: Can I pay remote workers less than in-house staff?

Paul Richards, data analyst at WTW, said that firms were competing for the best staff.

“As the Covid-19 threat starts to recede and the economy starts to recover, we’re seeing significant year-on-year improvements in pay rises,” Richards said. “Employees in some industries are faring better than others, but these are often the industries that were hardest hit by the pandemic, such as leisure and hospitality.

“Overall the outlook for salaries is strong as businesses start planning budgets for 2022, and many are keen to retain top performing staff with performance-related pay as key areas of the employment market start to hot up.”

>See also: Do I have to pay staff who are self-isolating?

Almost half of 725 firms surveyed they are seeking to hire more staff in IT (47 per cent) and sales (46 per cent), closely followed by engineering professionals (45 per cent).

One third (32 per cent) plan to recruit more staff in the coming 12 months, while less than 7 per cent expect to cut headcount.

By industry, salaries are set to rise fastest in the media – up 3.3 per cent – followed by leisure and hospitality at 3.2 per cent and technology at 3 per cent.

These are all above the rate of consumer price inflation, which was 2 per cent in the 12 months to July, indicating workers will get a real-term increase in earnings.

And small business owners may have to reach deeper into their pockets if inflation approaches the 4 per cent feared by the Bank of England later this year, pressuring owners to hike wages further — but also raising the spectre of a wage-price spiral not seen in the UK since the Seventies.

The survey revealed clear signs of optimism and recovery among employers. Over half (54 per cent) of British firms said their business outlook is “ahead” or “well ahead” of where they thought it would be, while just 3 per cent said it was below expectations.

Further reading on pay

Do I need to pay more to staff who work unsociable hours?

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