Using our heads to solve your Reward challenges.
As we look back on 2025, it's clear that this has been one of the most dynamic and disruptive years for Reward professionals in the UK. Economic turbulence, shifting employee expectations, government-driven changes and talent scarcity combined to reshape how organisations think about pay, benefits and the employee value proposition.
At Reward Heads, we've spent the year on the front line with clients navigating these challenges - and several themes stood out.
1. National Living Wage: The Biggest Budget Driver of the Year
Implementing April's 6.7% increase to the National Living Wage set the tone for the year, creating immediate pressure on payroll budgets. The rises were even more pronounced for under-21s as the government continued its effort to narrow pay gaps for younger workers.
And with 2026 rates already announced, it's clear these uplifts aren't one-offs - they're structural shifts. Many organisations are experiencing pay compression, with lower earners catching up to those in mid-level roles, triggering internal equity conversations that will continue well into next year.
Fixed pay growth also stabilised at around 3% - well above the pre-COVID 2% norm - with the biggest increases continuing to concentrate at the lower end of the pay scale. And we already know that will continue to be the case in 2026 with new NLW wage rates just announced.
2. The Employer National Insurance Surprise
While employers expected NLW increases, the real surprise came from the Employer National Insurance jump: from 13.5% to 15%, coupled with a significantly lower threshold.
This change wasn't just unwelcome - it was unexpected, hitting budgets fast and hard. The widening of the threshold alone brought an additional £4,500 of income per employee into the NI calculation and therefore some employees not previously required for NI calculations.
For many organisations, this meant less capacity for pay review increases, especially for mid - and senior-level roles, and more demand for low-cost or innovative benefits to compensate.
3. The Continued Rise of Total Reward & Creative Value Messaging
In a year where affordability and expectations felt constantly at odds, employers had to get smarter about the wider proposition.
We saw a marked shift towards:
This holistic approach is helping organisations attract and retain talent without relying solely on pay - a strategy that is increasingly necessary.
4. Tech & AI Skills: The Talent Tug-of-War Continues
In our Reward Heads tech forums, one message came through time and again: the challenge isn't only paying competitively - it's defining the roles and skills you're paying for.
With “hot skills” evolving rapidly, organisations struggled to keep frameworks aligned with reality. Skill scarcity, shifting job families and fast-moving AI capabilities meant many Reward teams spent the year constantly recalibrating.
5. Out-of-Cycle Increases Are Still (Too) Common
Despite tighter budgets, out-of-cycle pay adjustments continued to appear across industries - often reactively. Many leaders are now seeking stronger governance and clearer guardrails to ensure fairness and consistency. And that is in organisations not caught by Pay Transparency legislation.
6. Pay Transparency Moves Centre Stage
The EU Pay Transparency Directive prompted several UK companies with European operations to overhaul pay structures, evaluation frameworks and reporting.
Even where there's no legal requirement, the expectation of transparency has taken hold. Employees want clarity on:
The push for fairness has become as much about culture and trust as it is about compliance.
7. Purpose-Driven Reward Takes Hold
More organisations are deliberately aligning their reward practices with their values:
This shift signals a maturing of the Reward agenda - one that goes beyond money to meaning.
8. Flexible Benefits Gain Real Momentum
Unlike base pay or bonus structures where individual input can be very complex, benefits provide fertile ground for customisation. Many employers expanded or redesigned their offerings to better support wellbeing, lifestyle choices and individual needs.
From cost-effective add-ons to fully flexible plans, personalisation is becoming a core expectation.
A Year of Adjustment - and a Shift Back to Strategy
Despite all the turbulence, one of the most encouraging developments of 2025 has been the return to long-term thinking. Reward strategies are becoming more forward-looking, more data-driven and more aligned with organisational purpose.
Of course, no two organisations experience these challenges the same way. Sector, size, legacy structures and workforce demographics all shape the journey.
But one thing is clear: Reward professionals have been juggling more than ever - and doing it with extraordinary skill.
Looking Ahead
If any of this resonates with you and you'd like support building a Reward strategy that is fair, future-ready and truly impactful, we'd love to talk. Please reach out on rewardsolutions@rewardheads.co.uk. As you would imagine, we are preparing an article where we will explore what 2026 may bring - from wage forecasts and upcoming legislation to the evolving expectations of employees in another pivotal year.