Employers Planning on Record High Salary Increases in 2023

Employers are planning on record high salary increases in 2023 in order to attract and retain the workers they need to succeed.

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If you’re an employer, you might be thinking about increasing your salary budget and wondering exactly how big of a raise you should give your employees. Employers across the country are planning to increase their salary budgets by 4.6% next year, which is the highest expected annual increase in 15 years. There are a few reasons behind this investment, but at its heart is the effort to retain and attract workers in this challenging job market. With Hawaii’s unemployment rate dropping to 3.4% in October, employers are having to work hard to fill vacant positions in their businesses, providing leverage for workers who may be struggling to make ends meet under high inflation rates.

Employers Planning on Record High Salary Increases in 2023

According to’s 2022 U.S. and Canada National Salary Budget Survey, the percentage of organizations giving 2-3 percent increases that became so standard over the last decade has dropped to its lowest point since 2019. In 2022, 12% of businesses planned to offer a 4-5% increase compared to 7-8% of organizations in 2021.

A survey of employers conducted by Gartner in September and October of this year, found that employers in North America are expecting to offer merit increases of 7% on average next year. A large majority of the businesses who said they were planning to offer much larger than average raises next year said it was because of high rates of inflation and a tight labor market. While inflation is easing some this fall with consumer prices in the Honolulu area increasing just 0.8 percent for the two months ending in September 2022, overall inflation for the year sits at 6.6%. This means that any raise below 6.6% is effectively a pay cut.

Employers are planning to pay for raises in a variety of ways such as:

  • Reassessing their total rewards package to focus on higher salaries,
  • Restructuring and reducing headcount,
  • and/or raising prices to offset the cost of higher salaries.

The effect of worker shortages on wage increases

There are several reasons that wages are increasing at a higher rate this year, most notably the return of lower-level workers flexing their market power. Aging Baby Boomers who left the job market during the pandemic have left many industries with major worker shortages. There are simply more jobs available than we have people willing or qualified to work those jobs.

Salary Increases Won’t be Even Across the Board

While raises are expected across all job categories, from hourly employees up to the executive level, there are some factors that will affect which workers get higher raises than others. Employers are considering several factors, including employee performance, the going market rate for a position, the skills that are in the most needed at their organization, and which jobs have been the hardest to fill. The biggest share of the salary budget increase will go to workers with critical skills and for jobs with the highest rates of job openings, including jobs in food services, transportation, and retail.

Despite what percentage raises employers say they plan to offer next year; the exact percentage may change with fluctuating market conditions. If certain important positions continue to be difficult to fill, for example, salary budgets may increase even more than expected for those positions.

Partnering with Makai HR

Not excited about employer laws? That’s okay; we’ve got you covered through HR outsourcing! When you partner with Makai HR you can get on with the business you are trying to grow while we take care of your employee needs from payroll to taxes, health insurance/benefits and worker’s compensation. You also gain peace of mind that you are compliant with all of Hawaii’s employer laws (if you’ve ever looked you know that the list is very long and changes happen). When choosing a PEO to partner with, there are many things to consider including cost, services, and technology solutions. 

With the cost of doing business in Hawaii at record highs, we know how important it is to keep labor costs in line with revenue. Our plans are priced competitively and include value-added services like time-in/time-out systems. Our three tiers of PEO service plans are tailored to the size of your business and specific needs. We offer a 100% paperless solution which means that your employees can manage their needs through a computer, tablet, or phone. We can truly improve your employees’ work benefits while freeing you up to operate your business.

What are you waiting for? Companies that partner with a PEO benefit from 7-9% faster growth, 10-14% lower employee turnover; and they are 50% less likely to go out of business. Contact us today to get started!

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