‘New normal’ for salary hikes in South Africa – and what to expect for 2025

Salaries in South Africa are forecast to increase by 5.5% in 2025, giving salaried workers a real increase of around 1%—the ‘new normal’ in the country after a real 2% hike for years.

This is according to forecasting done by payroll consultancy Axiomatic, which analysed the country’s prevailing inflation and economic conditions and company pay trends.

The group noted that salary forecasting is usually pegged to the expected inflation rate for 2025, but also takes into account historic pay trends.

“Salary increases are implicitly linked to inflation; where inflation is one of the most important determinants when deciding on the quantum of the salary increase,” it said.

“Employees want to retain the same purchasing power with their remuneration from one year to the next. Consistent with the Axiomatic methodology, a ‘forward looking’ approach must be adopted where inflation is forecasted for 2025, and the proposed salary increase is based on this result.”

Whatever salary hike materialises will be ‘forfeited’ to inflation.

According to the South African Reserve Bank’s (SARB’s) latest data, presented in September, the headline inflation eased to 4.4% in August, a 3-year low, and close to the middle of the bank’s target range.

“Our forecast suggests this progress will be sustained, with inflation contained below the 4.5% midpoint of our range through to the end of the forecast horizon, in 2026,” it said.

Axiomatic said that its forecasting aligns with this and that the 4.5% baseline for inflation is expected for 2025.

Historically, real salary increases have been around 2% higher than inflation, which would have put salary hikes at 6.5% for 2025.

However, the group said that “there has been a discernible trend over the last few years of lower real salary increases being granted”.

“This assertion is corroborated by the 5-year moving average, which has been steadily declining in recent years,” it said.

Even though 2022 and 2023 were anomalies—as inflation increased to higher levels than those envisioned when increases were determined at the beginning of the year—a 1.0% real salary increase has become the ‘new normal’ for salary hikes.

Thus, the protected hike for 2025 would be 1% higher than inflation – or 5.5% in nominal terms.

“This obviously ignores quantitative factors such as economic growth, union demands, trends in compensation and benefits and, of course, the unique financial position of any given company. These, however, should be considered closer to salary increase time,” the group said.

Union demands

While salaries workers in the formal sector may be getting around 5.5% in hikes, those working for the government may be in store for a bit more.

The South African Local Government Association (SALGA) and Organised Labour represented at the South African Local Government Bargaining Council (SALGBC) recently concluded a ‘landmark agreement’ on wage hikes.

They secured a 6% increase for the current financial year, and a CPI-linked hike for the next five years.

• 2024/25 Financial Year: Employees will receive a 6% salary increase, structured as follows:
  • 4.5% effective from 1 July 2024
  • An additional 1.5% from 1 March 2025
• 2025/26 and 2026/27 Financial Years: Salary increases will be set at CPI plus 0.75%.
• 2027/28 and 2028/29 Financial Years: Salary increases will be pegged at CPI plus 1.25%.

“The agreement takes into account the challenging economic environment, characterized by high inflation and constrained fiscal resources. It will come into effect on 1 July 2024 and remain in force until 30 June 2029. This deal is expected to provide much-needed stability in the local government sector,” the group said.

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