Will you get a raise this year?

As the labor market continues to shift in favor of employers, workers are likely questioning what raises will look like in 2025.

According to advisory company Willis Towers Watson (WTW), Americans will see an average raise of 3.7% this year, marking little difference from 3.8% in 2024. While this increase may seem too little in the face of rising costs across the board, it's still above the pre-pandemic rate of 3%. 

Many employees may in fact get more out of their comp package this year when accounting for other aspects of compensation. Overall, total payroll expenses, including salaries, bonuses and benefit costs, increased by 5.5% in 2024, according to WTW. Workers should also keep in mind that performance and current place in their roles' pay range will impact their raise, notes Lori Wisper, managing director of WTW.

Read more: How to ask for a raise

"If you're a strong performer who meets expectations, then you're probably going to get that going rate. But if you perform below expectations, you may get a lot less," she says. "Then there's another [point] of variability, which is where you are in the salary range. If you're a senior accountant making above what the market would say is the right level, you may not get much of a raise. Organizations may give more money to people low in their respective ranges."

Ultimately, raises will depend on what employers decide to do with their salary budgets this year. For companies reducing their budgets for raises this year, 36% named weak financial results and 34% named cost management concerns as the reason for their decision. For those increasing their salary budgets, 39% of employers highlighted inflationary pressures, and 31% actually listed the tight labor market as a leading factor. 

Wisper reminds employers and employees that while labor demand has decreased, the U.S. is  still in a labor shortage. According to a recent report from the U.S. Chamber of Commerce, there are 8 million job openings in the country but only 6.8 million unemployed workers. In other words, there are 1.7 million workers missing from the labor force. Depending on the employer's industry, retention may be especially crucial. 

Read more: 4 compensation trends that hint at what's in store for 2025

"Salary increase budgets are always built off labor market dynamics," says Wisper. "It's the supply and demand of labor. Every company has to look at its own situation and decide what's affordable. If you can only afford a 3% [raise] in a market paying 3.7%, then you risk attrition. But there may be a good reason why you can't do more than 3%. It's a little bit of a risk management game."

Wisper still stresses that the future of a company doesn't entirely rest on raises. Organizations will continue to look beyond pay to motivate their workers to stay. For example, WTW found that 54% of employers will place a broader emphasis on DEI, and 53% will focus on improving the employee experience. Despite the return-to-office waves, 48% of employers plan on increasing workforce flexibility, and 52% offer or plan to offer the choice of remote, onsite or hybrid work arrangements.

Read more: 4 benefit trends employers should watch in 2025

"Pay is usually the number one reason people stay at an organization or leave to go elsewhere," says Wisper. "But if you have super rich benefits, you're known as a great place to work or you allow employees to work remotely, then you don't need the highest pay to attract and retain people."

Wisper places pay at the bottom of Maslow's hierarchy of needs — it's a universal necessity for survival. What companies add on top of pay varies and can often define who is attracted to that workplace and who will most likely stay.

"You have to pay competitively, but you have to picture the overarching package," says Wisper. "[Employees] ask, 'How much vacation do I get? Can I work remotely? Do they have good healthcare?' You have to figure out where to invest your limited reward dollars to maximize the package for the people you want."