Trends HR leaders should watch for 2025

As we approach 2025, organizations are navigating an ever-evolving compensation landscape shaped by economic shifts, technological advancements, and changing workforce expectations. For HR leaders, staying ahead means more than just benchmarking salaries—it requires a proactive approach to compensation strategies that align with business goals and employee well-being.

We asked Amy Petrus, CCP, SPHR, SHRM - SCP , YPHR Partner and Compensation specialist, a couple of questions about what to expect for 2025 as it relates to compensation- here's what she had to say:

Question: What does projected compensation increases for 2025 look like, and what tools employers can use to plan for compensation increases in 2025?

Compensation increases appear to be tempering as compared to the last couple of years. Most surveys are indicating a 3-4% increase in compensation planned for 2025.? According to Mercer’s August 2024 QuickPulse U.S. Compensation Planning Survey,?U.S employers are budgeting for 3.3% merit increases and 3.6% total salary increases for non-unionized employees in 2025.

According to the Economic Research Institute’s most recent white paper published October 2024, the National Compensation Forecast projected increase budgets = 3.72% and projected increases to compensation structure = 2.76%. Salary & Compensation Data Platform | ERI Economic Research Institute

World at Work published an annual Salary Budget Survey in July 2024: Click here to view the survey results-World at Work.

Question: Are there any changes in the law planned for 2025 that impact compensation?

Under the Fair Labor Standards Act (FLSA) the minimum salary threshold for an employee to be exempt from overtime increased on July 1, 2024 from $35,568 to $43,888 and is planned to increase again to $58,656 on January 1, 2025.?In addition, starting July 1, 2027, salary thresholds will be updated every three years.?What does this mean for employers?

If you have employees who are currently classified as exempt under the FLSA and are being paid less than the new 2025 threshold of $58,656, there are two options:

1.?????Increase pay to the new threshold to remain exempt.

2.?????Convert the employee(s) to nonexempt, this results in the employee(s) tracking hours worked and eligible for overtime pay for any hours worked over 40 in a workweek.?

The change in the law is an excellent opportunity to re-evaluate your organization’s classification of positions as exempt or nonexempt per the law. Follow this link to the Department of Labor's Fact Sheet about Exemption to assist you in determining is a job is truly exempt from overtime.

If you need assistance navigating your compensation strategy for 2025 and beyond, please reach out and we can connect you with Amy!

Looking forward into 2025, here are some trends we are watching as it relates to Compensation:

The Rise of Skills-Based Compensation

The traditional job title-based pay structure is giving way to skills-based compensation. As businesses increasingly adopt digital transformation, roles are becoming more fluid, and specialized skills in areas like AI, cybersecurity, and data analytics command a premium. For HR leaders, this means:

• Reevaluating job architecture: Define roles based on skill sets rather than rigid job descriptions.
• Investing in upskilling: Providing employees with the training to meet future demands while creating internal pathways to higher compensation.
• Dynamic pay adjustments: Using real-time labor market data to ensure competitive offerings.

Inflation and Pay Transparency: Navigating Economic Realities

Inflation continues to affect purchasing power, making cost-of-living adjustments a key focus. At the same time, regulatory pushes and cultural demands for pay transparency are transforming how companies communicate about compensation. In 2025, HR teams will need to:

• Embrace transparency tools: Clearly outline pay ranges, promotion pathways, and equity distribution to build trust.
• Focus on holistic compensation: Highlight non-monetary benefits like flexible work schedules, mental health resources, and career development opportunities to attract and retain talent.

Personalized and Flexible Benefits

The one-size-fits-all approach to benefits no longer resonates with today’s diverse workforce. Employees want more personalized packages that cater to their unique life stages and needs. The compensation conversation for 2025 will expand beyond salaries to include:

• Customizable benefits platforms: Allowing employees to choose benefits that matter most to them, from childcare support to tuition reimbursement.
• On-demand pay options: Meeting the expectations of a workforce accustomed to immediacy by offering flexible payroll systems.
• Well-being incentives: Recognizing the growing importance of mental and physical health in employee satisfaction.

The Integration of AI in Compensation Planning

Artificial Intelligence (AI) will play a transformative role in optimizing compensation strategies. From predicting turnover risk to analyzing pay equity, AI can help HR leaders make data-driven decisions. However, this technology must be used responsibly to avoid biases and maintain fairness.

Equity and ESG in Compensation Strategies

Environmental, Social, and Governance (ESG) metrics are becoming an integral part of compensation structures, particularly for executive pay. Tying compensation to ESG outcomes signals a company’s commitment to sustainability and social responsibility, which increasingly matters to employees and investors alike. For HR, this means:

• Incorporating ESG metrics into bonus structures.
• Educating employees about the company’s ESG goals and how their performance ties into these broader objectives.

For more information about YPHR and our team, please visit www.yourpartnerinhr.com or send us a message to connect today!