According to the latest report from the U.S. Bureau of Labor Statistics (BLS) released on June 16, employers increased their spending on employees’ overall compensation in March 2023 compared to December 2022, although the rate of increase may be slowing due to declining inflation.
In March 2023, employers spent 1.4 percent more on wages and benefits compared to December 2022. On average, total compensation for private-industry workers amounted to $40.79 per hour worked. Wages and salaries accounted for 70.5 percent of employer costs, averaging $28.76 per hour worked, while benefits costs accounted for the remaining 29.5 percent, averaging $12.02 per hour worked.
According to the BLS, at the 10th wage percentile, total compensation costs for private-industry workers were $15.91 per hour. At the 50th percentile (median), it was $30.26 per hour, and at the 90th percentile, it reached $78.42 per hour.
Comparing these figures to December 2022, the average total employer compensation costs for private-industry workers slightly increased from $40.23 to $40.79 per hour worked. In December 2022, wages and salaries accounted for 70.5 percent of employer costs ($28.37 per hour), while benefits costs accounted for 29.5 percent ($11.86 per hour). The compensation costs for employers increased by 1.6 percent from the third quarter to the fourth quarter of 2022.
However, it’s worth noting that compensation costs for private-industry workers are significantly lower than those for state and local government workers. In March 2023, the average total compensation costs for government workers reached $58.08 per hour worked. Wages and salaries accounted for 61.8 percent ($35.89 per hour), while benefits costs accounted for 38.2 percent ($22.19 per hour).
These figures are released amidst a slowdown in U.S. inflation after months of rapid increases. High inflation led many employers to raise wages significantly, but as inflation decelerates, this trend may change. The most recent Consumer Price Index from the BLS, released this week, shows that inflation dropped to a 4 percent annual rate in May, a significant improvement from its peak of 9.1 percent last summer.
The substantial pay raises provided in the past year, aimed at attracting and retaining workers and combating inflation, may be starting to taper off. Mercer, a consulting firm, reported in May that U.S. employers reported average annual merit increases of 3.8 percent for 2023, and total compensation (including all types of compensation increases impacting base pay) increased by 4.1 percent.
However, Mercer’s survey indicated that the size of these pay increases for 2023 is slightly below what employers had initially budgeted a few months ago. This suggests that employers are still investing in compensation to address labor market challenges, but they are exercising more caution compared to 2022, as stated by Lauren Mason, senior principal in Mercer’s Career Practice.
In terms of benefits, health insurance accounts for 6.9 percent of total compensation for private-industry workers, followed by Social Security and Medicare contributions at 6 percent, and vacation time at 3.8 percent, according to the BLS report.
The BLS categorizes total benefits costs into 18 items across five major categories: paid leave (vacation, holiday, sick, and personal leave), supplemental pay (overtime and premium pay), insurance (life, health, short-term and long-term disability), retirement and savings, and legally required benefits (Social Security and Medicare).