Employers pull back on pay increases despite rising inflation, Payscale Salary Budget Survey Finds

August 07, 2025 at 09:00 AM EDT

After years of strong wage growth driven by a competitive labor market, U.S. employers are pulling back and planning for a 3.5% salary budget increase in 2026, down 0.1% from 2025, suggesting salary budgets are settling into a more sustainable pace after several years of rapid increases.
Fewer organizations now see labor supply shortages as a primary driver for higher salary budgets; only 34% cite it as a factor in 2025, down 19 percentage points from last year.
The technology industry, a bellwether for salary growth, is seeing a 0.5% decrease in planned pay increases for 2026 compared to 2025.

BOSTON, Aug. 07, 2025 (GLOBE NEWSWIRE) -- Payscale Inc., the leading provider of compensation intelligence solutions, today released its tenth annual Salary Budget Survey, a key resource for HR and compensation professionals determining pay increase strategies for the upcoming year. The survey reveals that U.S. employers plan a 3.5% salary budget increase for 2026, down 0.1% from 2025. A decline in pay increases expected in 2026 is also coupled with signs of rising inflation, creating increased pressure on compensation teams to balance employee expectations with limited budgets. Strategic compensation planning is critical to continuing to attract, retain and motivate talent.

The main reason cited for the modest decline in planned pay increases is growing concern about economic conditions, noted by 66% of organizations—a 17% increase from last year’s report. Meanwhile, labor market competition continues to ease, as fewer employers offering higher raises point to labor shortages as a driving factor—a 19% year-over-year decrease. Most notably, the technology industry, a sector where demand for top talent drives up top salaries, is seeing a 0.5% decrease in planned pay increases for 2026 compared to 2025.

"Pay increases have been tapering year over year as the surge in wage growth and inflation begins to level off," said Ruth Thomas, chief compensation strategist at Payscale. "But inflation is starting to creep back up with economic uncertainty mounting and labor markets shifting in favor of employers, which may mean that pay increase plans will need to be revisited. HR leaders should be prepared for heightened scrutiny around compensation, particularly as one in three employees (32%) feel their pay does not reflect their performance.”

Additional findings from Payscale’s Salary Budget Survey include:

Rising Inflation May Require Comp Leaders to Change Their Strategy. Pay increases to adjust for inflation make up only a quarter (26%) of reported pay increase types. According to Payscale’s Pay Confidence Gap Report, 88% of consumers believe that salary should reflect cost of living.
Employers Also Need to Track Cost of Labor for Fast-Moving Jobs. Similarly, only 39% of compensation leaders surveyed noted that they are specifically planning for salary structure increases to align structures with current market rates. Making these adjustments requires insights into how the cost of labor has changed for fast-moving jobs.
Planned Pay Increases are Falling Behind Wage Growth in Some Sectors. Payscale found that wage growth from the Bureau of Labor Statistics exceeds planned base-pay increases in our Salary Budget Survey for most industries. Planned pay increases in Healthcare & Social Assistance (3.5%) and Retail & Customer Service (3.5%) are rising but may not be rising enough to keep up with wage growth. Planned pay increases are actually declining when wage growth is rising in industries such as Business Services (4.0%), Finance & Insurance (3.8%), and Manufacturing (3.3%), which puts organizations at risk of attrition.

Payscale provides the Salary Budget Survey as a free data resource to help organizations plan their budgets effectively. To download the report, which includes insightful analysis on pay increases by employee type broken out across industry, revenue, company size, organization type, and geographic segments, visit Payscale.com.

Methodology
Payscale clients and contacts were invited to participate in our Salary Budget Survey (SBS) in May-June 2025 via email. Submissions were accepted through June 15, resulting in 1,551 usable submissions. The full methodology is included in the report.

About Payscale
Payscale is the original compensation innovator for organizations who want to scale their business with pay and transform their largest investment into their greatest advantage. With decades of innovation in sourcing reputable data and developing AI-powered tools, Payscale delivers actionable insights that turn pay from a cost to a catalyst. Its suite of solutions — Payfactors, Marketpay, and Paycycle — empower 65% of the top companies in the U.S. and businesses like Panasonic, ZoomInfo, Chipotle, AccentCare, University of Washington, American Airlines, and TJX Companies.

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Contact: Press@Payscale.com