Amid low unemployment levels and a growing skills gap, employers are retooling their compensation and benefits strategy to attract and retain workers. In 2025, compensation budgets are expected to remain above historical trends, and benefits will become even more personalized, experts say.
Josh Bersin, CEO of human capital advisory firm The Josh Bersin Co., said companies will need to ask themselves what deal they offer to workers and how their employee experience compares in the battle for talent.
“As we move into 2025, rising demands for inflation-adjusted pay, greater flexibility (with remote working as a standard expectation), and persistent labor shortages may force organizations to reevaluate their entire benefits stack,” Bersin said.
Experts shared with HR Dive their predictions for the year ahead on the compensation and benefits front.
1. Salaries will remain steady
Ruth Thomas, pay equity strategist at Payscale, a compensation software and data company, predicts wage growth will remain steady, driven by economic conditions, inflationary pressures, increased transparency expectations and continued competition for skilled workers.
To that end, employers said they expect to increase their compensation budgets by 3.3% for merit increases and 3.7% for total salary increases for nonunion workers in 2025, a recent Mercer report found. That is on par with last year’s increases and shows a continued investment in the workforce, Mercer said.
Amy Garefis, chief people officer for ZipRecruiter, said companies will be focused on compensation and benefits “as a key factor for retention and talent attraction this year.” She highlighted a recent ZipRecruiter survey that found that 39% of the more than 2,000 companies surveyed experienced higher turnover in 2024, and the most commonly cited reason was inadequate compensation or benefits.
“In 2025, shifting legislation and tight budgets will likely drive companies to be more strategic, focusing investments on high-impact areas like retaining top performers and optimizing hiring processes,” Garefis said.
Part of that will involve turning to pay-for-performance models, and 30% of employers expect to increase the share of compensation tied to performance, she said.
Compensation also could be tied to competencies, Mike Ohata, a leadership coach, told HR Dive. As organizations continue to develop skills-based models, they likely will use “proficiency and competence as part of performance and compensation decisions.”
2. Employers will finally contend with salary transparency
Fourteen U.S. states and four Canadian provinces will have salary transparency laws in place by the end of 2025 and all European Union countries will by the end of 2026. Yet 75% of companies aren’t ready for pay transparency laws, a December report by Aon plc, a global professional services firm, found.
That means most employers have a long way to go to be ready for compliance and will need to evaluate their compensation strategies, experts say.
The incoming Trump administration will likely try to weaken the U.S. Equal Employment Opportunity Commission, the National Labor Relations Board and the U.S. Department of Labor, which could affect initiatives designed to benefit workers, according to Lulu Seikaly, senior employment counsel for Payscale. That includes efforts to increase the federal minimum wage and pay transparency, Seikaly said.
But despite delays at the federal level, state initiatives likely won’t come to a complete halt, Seikaly said.
3. Flexible benefits are the name of the game
The evolution from standard benefits to more personalized ones will carry into 2025, experts say.
“HR teams will continue to shift from one-size-fits-all benefits to more flexible and portable benefits that meet employees’ unique needs and goals,” said Rob Whalen, co-founder and CEO of BNFT, a comprehensive benefits platform.
Benefits also will become more comprehensive, extending beyond basic healthcare coverage to employees’ financial wellness and their families, Whalen said.
“The right benefits are central to employees’ overall well-being, and they will be a major competitive differentiator in the coming years,” Whalen said.
Already, employers are looking to expanded parental leave, ‘pawternity’ leave and paid leave for military spouses to help with moves.
To figure out what works best for their teams, employers will “likely take a more optimized, data-driven approach to their benefits and perks offerings to optimize ROI,” ZipRecruiter’s Garefis said.
4. More accommodation requests will accompany RTO
As companies enforce return-to-office mandates, HR leaders should prepare to see more requests for accommodations, Seth Turner, chief strategy officer and co-founder of AbsenceSoft, a leave and accommodations management platform, told HR Dive.
“Employers should be prepared to effectively follow the interactive process and document all steps and decisions regardless of the outcome of the accommodation request,” Turner said. “The preparation should also include the potential need to change policies or job descriptions and essential functions, as well as the development of a plan for sharing those changes effectively with employees.”
The RTO push has already been accompanied by a rise in requests for accommodation for disabilities, including both physical and mental health. Long COVID, for example, can be considered a disability under the Americans with Disabilities Act, according to the U.S. Department of Health and Human Services. And the U.S. Equal Employment Opportunity Commission provides telework as a disability accommodation.
5. Despite rising healthcare costs, more employers will consider GLP-1 coverage
Healthcare costs continue to climb, and insurers predict a 10.2% cost increase in the U.S. for 2025, up from 9.3% last year, according to recent WTW survey results. To combat rising costs, employers are evaluating their offerings and looking at digital health solutions and unnecessary utilization, WTW said.
Yet, even despite cost control efforts, more employers are considering covering GLP-1s for obesity treatment, not just diabetes. In 2024, obesity drug coverage rose to 44% among employers with 500 or more workers, compared to 41% last year, according to Mercer’s 2024 National Survey of Employer-Sponsored Health Plans. And, among the largest companies, coverage hit 64%, up from 56% the previous year.
“In general, I see GLP-1 coverage expanding, not contracting. Employers are shifting from the question of whether to cover these drugs for weight loss to how to cover these drugs for weight loss,” Dr. Shantanu Nundy, executive vice president and chief health officer for Accolade, a personalized healthcare company, said.
Greater adoption will hinge on whether the Centers for Medicare and Medicaid Services expands coverage of GLP-1s, Nundy said.
“The question for employers will become, what are proven solutions for expanding access to GLPs while managing affordability — the answer in my mind is to deliver outcomes, to actually help more patients meet their weight loss goals and quickly,” Nundy said.