Employers recognise financial wellbeing matters – but many cannot afford to solve it through pay 

Just one in five UK employers are planning inflation-beating pay rises this year, despite growing concern over the financial resilience of the workforce.

According to new research from the Work Foundation at Lancaster University, organisations are increasingly turning to workplace benefits, flexible working and targeted financial support as rising employment costs make meaningful pay increases harder to deliver. 

The representative survey of 1,001 senior business decision-makers found that only 22 per cent of employers expect to offer above-inflation pay rises in 2026. Among businesses with fewer than 50 employees, this falls to just 16 per cent. 

The research comes as many households continue to experience financial pressure. Office for National Statistics data shows one in three adults are struggling with energy bills, while one in four say they would be unable to cover an unexpected £850 expense. 

Despite these challenges, 82 per cent of employers say they are planning some form of financial wellbeing support this year. The most common initiatives include extending employee benefits (27 per cent), offering greater flexibility around working patterns and benefits (26 per cent) and providing overtime opportunities (24 per cent). 

However, one in seven organisations say they have no plans to introduce additional financial wellbeing support, rising to almost one in three among smaller employers. 

For workplace wellbeing leaders, the findings highlight a growing challenge. 

Financial wellbeing has become a central pillar of Human Sustainability strategies, with evidence consistently linking financial stress to reduced productivity, poorer mental health, increased absence and lower employee engagement. Yet, the research suggests many employers are caught between recognising the need to support employees and facing rising cost pressures themselves. 

Ben Harrison, Director of the Work Foundation at Lancaster University, said repeated periods of weak wage growth and rising living costs had left many households with little financial resilience. 

“A sluggish economy and ongoing global instability risks further intensifying cost of living pressures that workers across the country are already facing,” Harrison said.

“Repeated periods of stagnant wage growth and sustained increases in the cost of essentials have left many households with little financial resilience to cope with any further economic shocks.” 

While pay increases remain constrained, the research suggests employers are broadening the ways they support financial wellbeing. 

Alongside enhanced benefits and flexible working, employers are increasingly offering one-off cost of living payments (21 per cent), signposting employees to external advice services (18 per cent) and providing childcare support (17 per cent). 

The report also reflects changing labour market conditions. Recruitment pressures have eased, with almost seven in 10 employers saying they are no longer experiencing recruitment or retention challenges. However, 12 per cent report making redundancies due to rising costs, while 13 per cent have reduced employees’ working hours. 

Professor Hilary Ingham, Professor in Economics at Lancaster University and Research Fellow at the Work Foundation, said smaller employers in particular were operating with very limited financial headroom. 

“Most employers genuinely want to support their staff, but currently smaller businesses are operating with very limited financial headroom,” Ingham said. 

The Work Foundation argues employers should prioritise inflation-beating pay rises for the lowest-paid workers wherever possible and, where this is not achievable, focus on targeted support such as enhanced workplace benefits, flexible working and help with essential costs including childcare and transport. 

As employers balance rising operating costs with employee expectations, the challenge increasingly becomes how to build financial resilience through a combination of fair reward, practical support, manager capability and workplace culture. In an environment where higher salaries are not always possible, the quality of support surrounding employees may become an increasingly important differentiator.