Despite Economic Jitters, Employers Plan to Dole Out 3.5% Raises Next Year

The labor market may be cooling, but employers are still planning on giving out above-average raises next year.

Businesses say they’re increasing their salary budgets by about 3.5% in 2026, according to several recent reports. That’s a slight uptick from the pre-pandemic norm of 3%.

“With turnover slowing, companies are getting more strategic about where their salary dollars go,” Diana Scott, an executive at business think tank The Conference Board, said in a news release Wednesday. “Rather than spreading increases across the board, they’re channeling budgets into roles and skills that really move the needle.”

For the 40th installment of its salary budget report, released Tuesday, the group surveyed 450 employers. On average, companies told The Conference Board, or TCB, that they plan to increase their salaries by an average of 3.4% next year.

Other recent surveys buttress that figure. A July report from the consulting firm Willis Towers Watson — which surveyed over 1,600 U.S. employers — found that companies are planning for a 3.5% increase to salaries next year. And Payscale’s most recent findings also indicate that employers expect to increase pay by 3.5%.

Those estimates are subject to change. But historically, proposed budgets tend to more or less mirror actual raises in TCB's surveys. For example, the proposed budget increase for salaries in 2025 was 3.9%, while actual raises were 3.5%.

Much can happen before 2026, though, and companies are already feeling uneasy about the economy. Some 61% of employers reported in TCB’s survey that economic uncertainty is giving them pause when it comes to their workforce plans.

Who’s getting the biggest raises next year?

A 3.5% raise next year is no guarantee. That is simply the average growth rate of the budget that companies say they have earmarked for employee pay. That bucket is often broken down further into categories such as merit-based raises, promotions, cost-of-living adjustments and other pay incentives.

Individual raises depend on many different factors, such as industry, company culture and performance review standards.

According to TCB survey results, the industries with the largest raises planned for next year are leisure and hospitality (3.73%); finance (3.61%); and health care (3.56%).

On the other hand, workers in local government, nonprofits, transportation and education can expect to have some of the lowest raises on average.

Why businesses are feeling so uneasy

U.S. trade policy, spearheaded by President Donald Trump, is throwing businesses for a loop. The president’s economic plan is rooted in his hopes of raising revenue by imposing broad tariffs on America’s trade partners. But the details change by the day.

The U.S. is currently imposing a 10% baseline tariff on all goods coming into the country. Then there are additional tariffs on specific imports like automobiles and steel. As a negotiating tactic, the president has also announced a bevy of country-specific tariffs of up to 50% on top of that. Complicating matters further is the fact that, in August, a federal appeals court ruled that Trump does not have the authority to impose most of his tariffs. The legal battle is likely headed to the U.S. Supreme Court.

In the meantime, the trade duties are still in place. This all amounts to a trade roller coaster that businesses can’t get off.

"Even if these tariffs are struck down, the uncertainty for businesses isn’t going away given the overwhelming likelihood that [the] administration will rely on other authorities to impose duties,” Jake Colvin, president of the National Foreign Trade Council, recently told Money.

According to the financial firm Principal, tariffs and policy uncertainty are weighing heavily on businesses.

“Today, business owners are striking a fragile balance — they’ve absorbed what they can and are now feeling the full weight of new tariffs,” Amy Freidrich, president of benefits and protection at Principal, said in a statement Wednesday. “An unpredictable economic landscape continues to impede their planning.”

And when companies can’t accurately project their operating expenses, it makes it much harder to plan their salary budgets.

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