What SME’s Need to Know About Pay, Inflation, and Skills Shortages

Source and Review Hays Salary Guide 2025:

The latest Hays Salary Guide spells it out: business owners have a real opportunity right now, but a cautious approach isn’t going to cut it. If you’re looking to attract and keep talent, it’s time to step up, because pay expectations, skill shortages, and hybrid work demands are all still in play. Here are the real takeaways from this year’s guide—and why you shouldn’t sit on your hands.

Salary Increases: Meeting (and Managing) Expectations

Right off the bat: 86% of companies are offering pay raises this year—but don’t get too excited. This number is down from last year’s high of 95%, and fewer businesses are going above 3%. The message is clear: companies are wary, even as employees expect pay rises to offset the cost of living. With almost 40% of workers still dissatisfied with their salaries, it’s clear that while we’re all sick of talking about inflation, employees still want to see their pay reflect the times we’re living in.

Here’s the deal: employers need to find a way to strike a balance. Throwing cash around isn’t realistic, but doing nothing will likely drive your top talent out the door. So, make it competitive. A well-timed, strategic pay increase can show your team you’re serious without breaking the bank. And it’s not just about the money—it’s about meeting your employees’ expectations without blindly overcommitting.

Skills Shortages: Easing, But Not Gone

Good news? The skills shortage is finally easing up, with 47% of businesses saying they have only minor or no shortages. That’s a decent improvement, especially with industries like construction breathing a sigh of relief. But it’s not a free pass—sectors like education, defence, and architecture are still hurting, with critical shortages that can slow operations and impact growth.

Employers have a few options: get creative with recruitment, invest in training, or lean on temporary and contract workers to fill in the gaps without making full-time commitments. It’s working for many, with contingent workers up 7% compared to last year. If you’re not using this tactic, now might be the time—temporary talent can be a lifeline when skilled full-timers are thin on the ground.

Hybrid Work: The Debate Is Over—Make It Work

Here’s something everyone should know by now: the hybrid work model is here to stay. Hays says 97% of companies now offer it, and guess what? Employees are happy. More than 80% report steady or improved productivity, and 63% say turnover is stable or down. But with the “where” of work settled, the “how” is now critical.

If your business is serious about making hybrid work work, put in the effort to improve communication and alignment. Having people in different locations means the old-school team bonding isn’t happening naturally, and weak communication will tear your team apart faster than you can say “Zoom call.” Streamline processes, invest in team-building, and make sure your leaders are pulling people together, not letting them drift apart.

Retention: It’s Not Just About the Paycheck

We get it—everyone wants a pay bump. But a big paycheck isn’t the only thing that keeps people sticking around. While 71% of employees still say a pay rise is their top reason for staying, other factors matter too. Strong team culture and a sense of job security make a huge difference in keeping employees engaged.

What else makes a difference? Trust. People want to work somewhere that values diversity, equity, and inclusion (DE&I), not as a PR exercise, but as part of its core values. And yes, ESG (Environmental, Social, and Governance) matters, too. When you build trust, show your company’s values, and follow through on promises, you’re giving people a reason to stay even when a competitor dangles a bigger salary. Think about it—this stuff is way cheaper than constant turnover.

Final Thoughts: Action Beats Caution Every Time

This year, cautious optimism is the theme, but cautious isn’t a strategy. If you’re an employer, it’s time to get moving:

• Offer Competitive Pay: This doesn’t mean endless raises, but a strategic bump here and there keeps employees on board. It also pays to do continual remuneration reviews to compare your current pay strategy to what is being paid in the market.
• Wage Compliance: is no longer a nice thing to have, with Federal Wage Theft laws looming, you need to ensure your house is in order around Award compliance. So, it may be time to do a Payroll Compliance check and BOOT tests to ensure you are not only paying people competitively but also in accordance with the law.
• Use the Hybrid Model to Your Advantage: Make remote and on-site teams gel with strong communication.
• Tap Into Temp Talent: Skill shortages are still real; fill gaps with flexible workers if full-timers aren’t available. This could involve using gig economy workers or offshoring. Whatever you do here make sure you get the right advice to ensure you are not breaking the law.
• Build Real Culture: Focus on trust, inclusion, and genuine company values. People don’t leave workplaces they believe in.

The Hays Salary Guide tells us that the extremes of the past few years are stabilising, but this is no time to sit still. Those who are proactive, flexible, and committed to a strong, people-first culture will be the ones standing strong through 2025.

If you need assistance with conducting pay reviews, external market comparisons or hiring flexible workers then get in touch we are here to help.

If you are worried about Wage Compliance download our Wage Theft Guide or get in touch and we can help ensure you are dotting your I’s and crossing your T’s.

Written by Emily Jaksch.