What will 2025 bring for UK contact centre pay and rewards?

As October came to a close, the Chancellor of the Exchequer made some announcements that will have a major impact on reward in contact centres.

As ever in pay, timing is key. Pay awards tend to lag inflation by around 6 months. That means that during the cost-of-living crisis when inflation was reaching double figures, pay awards were not keeping pace. And conversely, earlier in 2024, pay increases were still around 5% even though inflation was back around 2.2% by July and just 1.7% in September.

There were two key pieces of information which were revealed at the end of October 2024. The first is the UK minimum wage – the National Living Wage (NLW). Currently, this sits at ￡11.44 for those age 21 and above and applies to the whole of the UK.

On 30th October, the Chancellor announced the rate which will apply from April 2025. Whilst a rise to ￡12.10 was widely predicted, in fact a higher increase to ￡12.21 was announced – a 6.7% increase. We know that contact centres as a whole tend not to pay at the minimum even for new agents. Our data shows current median hourly rate for new agents to be ￡12.05 and so we would expect a new average rate around ￡12.82 to maintain the differentials to NLW. It is rare for contact centres to pay based on age but if they do, they will be facing 16-18% increases in NMW for under 21s.

So what is the implication? As it stands, our data shows that around 65% of UK contact centres will need to give new agents a pay rise just to stay in line with the NLW.

The Living Wage, which is worked out on a different basis and applies to all age groups, although with a separate London rate, was announced on October 23rd at ￡12.60 (and ￡13.85 in London), so closer to our sector average. This is not a statutory requirement but those who accredit need to ensure that this is paid to all as a minimum by 1st May 2025.

At the same time, we expect overall pay inflation to settle back around the 2-3% increases that we saw for many of the years since 2000.

Market expectations are suggesting 4% for 2025 but Reward Heads insight, driven particularly by the Retail and Hospitality sector, who are large competitors for contact centre entry level roles, suggests lower. We are also hearing that most businesses are considering whether they further constrain pay increases in the light of the 1.2 percentage point increase in Employer National Insurance and the lowering of the threshold to ￡5,000. This may be easier to implement for non-front line roles which are being driven by NLW.

One logical step to save National Insurance is to look at Salary Sacrifice – pension being a key place to start but other benefits such as cars, cycle-to-work and holiday purchase should be considered. A key point to consider is that the post-Salary Sacrifice salary cannot fall below NMW or top-ups are required and savings disappear.

We would also expect to see employers looking for other ways to differentiate themselves whilst having restricted reward pots, for example through benefits, incentives, or policies which would be as wide-ranging as flexibility of time and place to work, to career development. At the same time, the new government has announced significant changes to employment rights, expected to be implemented in 2028, which will cover areas from flexible working to carers’ leave which can have major impacts on the total reward offer and may see some market leading practices becoming the statutory minimum.

So how can employers fund these changes?

One option is to note that these higher costs indicate reduced profit, but it is unlikely that shareholders will accept lower returns.

Another is to find savings elsewhere in the organisation to fund higher payroll costs, but we expect that most organisations are already undertaking cost saving initiatives

Increasing prices to customers is always an option but many businesses offer products and services that are available elsewhere and so customers may vote with their feet. We have already seen significant price inflation: how much more would be tolerable?

Then really it comes down to people options. The first is reduced resource: either headcount or hours deployed. But in a contact centre environment this is likely to have a direct and negative impact on service levels and KPIs if no increased investment in efficiency-enhancing technology (such as AI agent assistance and self-service) is made. It's already the case that average speed to answer and call abandonment rates are at historical highs, so there's no room for standards to slip further.

The second is moving around the offer within Total Reward, even within the payslip for individuals – reduced incentives, fewer or less rich benefits, removal of premia such as night shift or overtime – but this is likely to reduce employee engagement and may require consultation.

Sadly, there is no easy option, but employers with large populations of agents are likely to see an increase in costs of around 8% from April and need to find a solution to ensure that their offering in this competitive market is compelling enough to recruit and retain key talent in their contact centres.

That is where our report, produced collaboratively between Reward Heads and ContactBabel can help. It shows pay and rewards data by vertical market, location, size, contact centre activity and role type within UK contact centres to help inform what that compelling offer should look like.

More information about our new report, “Pay and Rewards in UK Contact Centres” is available at https://www.contactbabel.com/pay-and-rewards/.