Navigating employee pay review conversations in 2026
17 December 2025
The cost of employing people rose in 2025 when the National Living Wage, the National Minimum Wage, and Employers’ National Insurance Contributions (NICs) all increased. The knock-on effect was a median pay increase of 3 – 3.5% in 2025. Experts predict a similar outlook in 2026, potentially dropping to 2 – 3% in 2027. With challenging employee pay rise conversations on the horizon, our HR Director, Kimberley Rowbottom, shares insights on navigating pay negotiations and maintaining morale.
Content:
How HR can explain Pay increase limitations 2026
What are the best alternatives to pay increases?
How to support employees’ financial wellbeing when pay increases are limited
How to maintain morale during limited pay increases
How do you communicate the value of workplace culture?
What should you avoid saying in pay conversations?
Are there legal considerations when communicating pay decisions in the UK?
In a hurry? Here are the top three takeaways from our article on navigating challenging pay increase conversations in 2026.
1. Pay constraints are real — credibility and transparency matter most: With wage costs rising and pay increases likely to stay modest, HR must clearly understand and explain the business reality. Employees are more likely to accept disappointing outcomes when HR and leaders consistently communicate the “why”, align messages throughout the year, and avoid surprises at pay review time.
2. Managers and communication will make or break morale: Line managers are critical in pay conversations. They need coaching to deliver empathetic, consistent messages without undermining business decisions. Build trust through honesty, preparation, and keeping dialogue open , it’s always best to avoid platitudes or false promises.
3. When pay is limited, benefits, recognition and development do the heavy lifting: Salary isn’t the only lever. Visibility and smart use of benefits, flexibility, recognition, and career development can meaningfully protect morale and retention. The biggest missed opportunity is often failing to communicate and personalise what’s already available — especially financial wellbeing support, flexibility, and growth opportunities.
Got time to stick around? Let's dive a little deeper.
As we share in our article, ‘The 2025 Autumn Budget: Employer and Employee Impacts’, from April 2026, the minimum wage for 18 – 20-year-olds and the National Living Wage will both increase for the second consecutive year.
The cost of living isn’t likely to decline significantly for some time, leading to a potential disparity between what employees feel they need in terms of a pay increase and what businesses can afford.
In this guest article, HR Director Kimberley Rowbottom shares her expert insights on navigating challenging HR pay review conversations and communicating the value of your employee benefits package while protecting morale and motivation.
Read on for UK HR advice for limited salary budgets.
How HR can explain pay increase limitations 2026
HR managers first need to understand the business and have a good overview of the financial results and commercial plan, reinforcing the importance of HR as a strategic business partner, not just ‘people issues.’ This evolution is even more essential as we start to see a shift in the HR agenda to employee productivity.
HR managers and HR leaders need a strong understanding of the commercials, because, ultimately, any decisions on pay freezes or low increases will be driven by business performance.
All leaders need to have that business acumen and understand the 'why' behind such business decisions. From there, they can present them as an aligned leadership team, enabling your HR team to understand the rationale behind those decisions, allowing them to communicate effectively. If you’re empowered with the ‘why’ and consistently communicate this message, it helps employees engage with disappointing news. Because it is disappointing at times. We all come to work to get paid.
How to talk to employees about small pay rises
Sometimes, pay freezes or low increases mean jobs are protected. You're making the call to freeze salaries to avoid making cuts, and this is something to communicate. Reflect on what you did last year and be really clear and upfront about what the business can offer this year and why.
How to maintain trust and transparency during pay reviews
Maintaining trust and transparency during pay reviews is vital. If you’ve painted a picture of the business thriving financially throughout the year, only to announce a small increase or pay freeze in the New Year, you’re likely to face issues.
The numbers won’t add up in the employees' eyes. Some, for example, may have information on the value of a client win, and they’ll struggle to buy the line you’re selling.
Clear HR communication strategies for explaining limited pay rises
Follow the steps below, not just during pay reviews but throughout the year, to ensure you maintain employee trust.
- Be credible: It’s vital to be credible when communicating pay decisions to your employees and the wider business.
- Lead from the top: It’s not just an HR responsibility. Leadership teams across the business must align to present a cohesive and consistent message. The pay increase or freeze wasn’t an HR decision. It’s an outcome based on multiple variables, with HR championing the needs of the people with business stability.
- Combine business acumen with human-first communication: While HR leaders need to have business acumen and be exposed to boardroom conversations, the delivery must still be people-focused. Explain things in a very humane and transparent way. Set the context and really share the story behind the decision.
- Be prepared: Don’t wait until employees are expecting the news. Start before then, giving yourselves time to support them with their financial planning and wellbeing. It shouldn't come as a shock.
- Be consistent: If you communicate financial results and key business updates throughout the year, your employees are more likely to know what to expect.
- Be transparent: Employees understand that performance affects pay, which is why regular communication is so important. Data-driven decisions and regular transparent communications ensure your employees trust the reasons behind the increase or freeze, even if they’re not happy with the outcome.
What about when employees have performed exceptionally?
Pay conversations with employees who have performed exceptionally can be especially delicate. They’ll likely expect recompense, so it’s vital to consider both business and personal outcomes when having these discussions.
It also comes down to your business’s rewards framework. If you've got a bonus scheme that recognises individual contribution as well as financial results, you must ensure that you carefully evaluate what your budget will allow you to do. It’s critical for every business to retain their top talent and high performers, this is where performance-related pay frameworks really help.
It’s vital to recognise high performers to keep the momentum going. Speak with them, listen to them, and clearly communicate your appreciation. Transparency is critical, especially if you offer them a team meal over extra money in the payslip.
If your budget doesn’t allow for that, you can still communicate your appreciation. Consider having a senior leader spend time with them to express the value and appreciation for their work personally. Next year could be better, and it’s this core group that will help you get there.
Handling emotional reactions to pay rise limitations
Even if your employees understand the business position, they may still feel disappointed or deflated. Others may be worried, especially if their family situation has changed and they rely on their wage to run the house.
Ensure the door remains open, encouraging employees to share their feelings or concerns with HR or their line managers, if they’re more comfortable.
It’s vital to listen, and even if you cannot increase your offer, you can educate them about the benefits available to them that may help their situation.
The HR skills gap: Handling difficult HR conversations
HR managers and directors are doing more than ever, and their role as strategic business partners is vital to long-term sustainability. The speed at which this essential change has happened, the transition to a business focus alongside the people, has created a skills gap among HR professionals.
The organisational culture and, ultimately, your CEO or Managing Director, is fundamental to determining the value you’ll drive from your HR function and your HR leader. Closing the gap is easier than you may think, and it comes down to giving people the right opportunities:
- Inclusion: Invite your HR leader to your business meetings so they can hear firsthand what’s happening across the wider business functions.
- Confidence: When you give your HR leaders the opportunity to understand the landscape, their confidence will soar, and they’ll feel like they can contribute to the broader commercial business conversations.
Some industries are more advanced, but you can quickly close the gap in your business by adopting inclusive and confidence-boosting steps.
How to support managers in conducting pay discussions
Some employees will feel more comfortable discussing their thoughts about the pay increase with their manager, especially if they have a good relationship with them.
Managers often walk a fine line. It’s fantastic if they have a good relationship with their team, but it’s vital for them to balance standing up for them with not being negative about the business decision. It may nurture a sense of camaraderie and ‘being in it together’, but it could erode trust in the business and senior leaders. This statement is true of every potentially contentious business decision.
Training managers for consistent messages
Managers are both the voice of their teams and an extension of the leadership team. They need to empathise with their colleagues and provide feedback on concerns without undermining leadership.
Once the business has committed to a figure, you should have a session with your managers, coaching them on how to behave, the best ways to communicate, and how to handle objections.
Giving managers a budget to do something special for their team will also help boost morale.
What are the best alternatives to pay increases?
Pay increases aren’t always possible, but that doesn’t mean we can’t create real value for our people. Let’s think beyond salary. If you have a powerful storehouse of benefits, ask yourself, “Are we truly leveraging them?”
Flexible working, family-friendly policies, wellness programmes, and extra leave can all make a huge difference. Are you maximising their value? Extra leave through an Annual Leave Purchase Scheme is incredibly valuable, giving employees time for more of what matters to them.
Recognition matters, too. In-the-moment awards, public praise, peer-to-peer appreciation. It's easier to pull together a small employee rewards budget that can have a significant impact on people, particularly during seasonal periods. For Christmas, an extra £10 or £20 voucher can be very meaningful for employees. Ask them which is their preferred retailer and personalise a voucher for them (we did this at Pluxee UK in December, and it was very well received).
Work-life enhancements, such as childcare support or lifestyle discounts, can ease daily pressures. Don’t forget financial wellbeing, for example, pension matching and education can build long-term security.
The key to positive outcomes?
Communicate what we already offer and make it visible. Sometimes the most significant impact comes from benefits employees didn’t even know they had. Let’s lead with creativity, not just compensation.
Non-financial rewards HR can offer
It’s not just perks. Career development is a game-changer: training, mentorship, stretch projects. How do you create opportunities to make your employees feel like they are still valued? Just because you can’t significantly increase their pay doesn’t mean you can’t invest in their career or personal development, both of which are effective people initiatives.
How to support employees’ financial wellbeing when pay increases are limited
HR leaders don’t approach these conversations lightly because the reality is that business decisions can impact their household income. It’s why it’s vital to consider what else you could do to alleviate some of that pressure.
Even family-friendly policies can help. For instance, consider shorter days, so employees pay less for childcare. Think outside the box because there are so many things to consider.
Listen to your employees and tailor your offering to their needs. They’re your consumer, so develop your benefits offering – the financial and non-monetary perks – with their needs in mind. Identify their pain points, iterate, and invest in solutions that will have the greatest positive effect.
Don’t underestimate the role of education and ensure you’re regularly promoting your suite of benefits, because people can forget. It’s also vital to review and refresh to ensure you haven't amassed a selection of unwanted and unused benefits.
Consider workforce demographics. You may have employees close to retiring, others just starting out and every stage in between.
How to maintain morale during limited pay increases
When salary budgets are tight, morale doesn’t have to suffer. It’s about shifting the conversation from ‘what we can’t do’ to ‘what we can.’ People value feeling seen, supported, and developed. So, let’s double down on recognition, make it personal, make it public. Celebrate wins in real time.
Next, invest in growth. Offer learning opportunities, mentorship, and stretch projects that show employees their future with you is bright. Growth doesn’t just come in the form of certificates. Development opportunities include shadowing, mentoring, attending senior leadership meetings, presenting, and gaining exposure. See what your budget allows for and create personalised development plans.
Flexibility is another powerful lever. Consider remote options, flexible hours, and even extra wellbeing days can speak volumes, and don’t underestimate the impact of communication. Often, the perks we have go unnoticed, so let’s make them visible and meaningful.
Morale thrives on connection, purpose, and appreciation—not just pay. If we lead with creativity and empathy, we can maintain high employee engagement during pay reviews even when budgets are lean.
Line managers are vital for maintaining morale. They have such a significant impact on day-to-day life at work. Having a supportive line manager who understands your daily challenges in and outside of work can be the equivalent of having an extra couple of thousand-pound salary increase.
That’s the difference a manager can make to job satisfaction and employee wellbeing. An employee could apply for a job offering a higher salary, but the payoff could be huge: a poor culture, a lack of flexibility, and excess stress.
How do you communicate the value of workplace culture?
Workplace culture matters. It can make or break the employee experience, helping you attract and retain top talent. Still, in the face of limited pay increases and employees receiving a better offer elsewhere, how can we compare the value of a positive workplace culture with a higher salary?
It comes down to stories. Peer-to-peer influence is your secret weapon. When colleagues share stories of workplace experiences that made them happy and enhanced their wellbeing, they bring the power of your culture to life.
Encourage employees to share their experiences of the things you’ve done, the perks in place, and the policies that have truly helped them, so that others understand the value in staying with you. They may be able to take home more money elsewhere, but what if their line manager isn’t a patch on their current one? What if they don’t understand the need to be flexible?
Cash may be king, but it won’t necessarily relieve your stress levels or make you happier if the workplace is unsupportive at best, toxic at worst.
It sounds like scaremongering. Employees may move on to something bigger and better, but the truth is, you don’t know what a business is like to work for until you’re working for them.
What should you avoid saying in pay conversations?
In pay conversations, what you don’t say is just as important as what you do. Avoid phrases that dismiss concerns, like ‘It’s not in the budget, so that’s that.’ That shuts the door on trust. Never compare employees to each other or imply they should ‘just be grateful.’ Steer clear of vague promises like ‘Maybe next year’ unless you can back them up. False hope erodes credibility.
Instead, focus on transparency and empathy. Explain the ‘why’ behind decisions, outline what you can offer—development, flexibility, recognition—and keep the dialogue open. People respect honesty and clarity far more than platitudes.
How to handle difficult pay conversations with staff
You may not know the impact your decision has until it's made, so don't minimise the effect that it could have on an individual. While understanding the commercials matters, never lose the human connection.
Are there legal considerations when communicating pay decisions in the UK?
Absolutely. There are legal considerations we must respect when communicating pay decisions in the UK. First, equal pay is non-negotiable. Under the Equality Act 2010, employees doing equal work must receive equal pay, regardless of gender or other protected characteristics. Any deviation can lead to tribunal claims and reputational damage.
Second, pay secrecy clauses? They’re unenforceable. Employees have the legal right to discuss pay if they’re trying to uncover inequality. Trying to ban those conversations could land you in hot water.
Third, transparency matters. For larger employers, gender pay gap reporting is mandatory, and new reforms are pushing for salary ranges in job ads and banning questions about past pay. These aren’t just compliance boxes; they’re shaping trust and fairness in the workplace.
So, when we communicate pay decisions, we need clarity, consistency, and compliance. Explain the ‘why,’ avoid discriminatory language, and make sure our practices stand up to legal scrutiny. It’s not just about avoiding risk; it’s about building a culture of equity and trust.
Navigating UK salary increase trends 2026 with Pluxee UK
Thank you to Kim for sharing her expertise on navigating the UK salary increase trends we’re likely to see in 2026. From legal obligations to an empathetic approach, this article has everything you need to prepare your HR and management teams to bring challenging conversations to a positive outcome.
About the guest blogger
Kim has spent almost 15 years working across various industries as a Strategic People Partner. She has led global people and engagement plans as well as transformation projects within complex manufacturing, engineering, tech start-up, and retail environments.
Kim is an innovative and strategic people leader and has a passion for delivering impactful employee experience and engagement initiatives that help employees realise their potential and deliver a positive impact on the commercial bottom line. She has a proven track record of designing, communicating, and leading organisational change projects, and of developing new operating models to support business growth.
FAQS
Why are pay rises limited in 2026 UK?
The 2024 Autumn Budget increased the National Living Wage, the Minimum Wage, and the employer NIC rates. The 2025 Autumn Budget announced another National Living Wage and Minimum Wage increase, effective from April 2026, making the cost of employing people the highest it’s ever been. With inflation remaining high and consumer confidence dipping, many businesses are experiencing revenue dips. These elements, when combined, affect an employer’s ability to significantly increase salaries.
How should HR explain a low pay increase?
A human-first approach is vital. It’s important to know the numbers for the entire leadership team to be united, but when explaining and communicating the decision, managers and HR should always be empathetic and understanding.
