Canadian salary increases projected to slow to 3.1% in 2026 as employers tighten budgets

While keeping and attracting workers is still a concern, fewer Canadian employers see it as a top priority — dropping from 62 per cent in 2024 to 54 per cent in 2025 and 50 per cent in 2026, Gallagher findings show. (Photo by Artur Widak/NurPhoto via Getty Images) · NurPhoto via Getty Images

Canadian workers are poised to see smaller pay raises next year as companies rein in salary budgets amid easing inflation and reduced pressure to compete for talent.

Average wage increases are forecast at 3.1 per cent for 2026, down from 2025, with companies leaning on targeted raises instead, according to new compensation data from consultancy firms Gallagher and Normandin Beaudry.

According to Gallagher, the expected average salary increase, excluding freezes in 2026, is 3.1 per cent, down from 3.5 per cent in 2025, and 3.8 per cent in 2024. Meanwhile, Normandin Beaudry says the 2026’s projected increase is a 0.1 per cent reduction compared to 2025.

The shift marks a return to pre-pandemic pay practices, as falling inflation and a cooler job market ease pressure on employers to boost compensation. While wages will still rise, the pace of growth is slowing, with few organizations prioritising aggressive pay hikes to retain or attract staff.

Caroline Long, vice-president of compensation practice at Gallagher, says that during the pandemic, employees could almost guarantee pay increases would keep up with inflation.

But as inflation continues to decline, the urgency to attract employees with higher-than-usual salary increases has tempered, she says.

“We’re seeing returns to pre-COVID, pre-pandemic type increases.”

While keeping and attracting workers is still a concern, fewer Canadian employers see it as a top priority — dropping from 62 per cent in 2024 to 54 per cent in 2025 and 50 per cent in 2026, Gallagher findings show. Only 32 per cent of organizations have confirmed additional budgets for pay bumps related to high potential, at-risk or fast tracking employees.

In addition to inflation, the job vacancy rate has also fallen, Long says. The vacancy rate fell to 2.7 per cent in May 2025, marking its lowest level since October 2017, according to Statistics Canada.

Due to a cooling job market, employers no longer need to be as reactive with higher compensation offers to attract, retain or offset alternative industry offers, Long says.

Currently, the unemployment rate has been holding steady at 6.9 per cent, with Canadians losing 40,800 jobs in July. Of the 1.6 million people unemployed that month, 23.8 per cent were experiencing long-term unemployment, meaning they had been searching for work for 27 weeks or more — the highest share of long-term unemployment since February 1998 (excluding 2020 and 2021, during the early stages of the pandemic).

Ongoing concerns around tariffs and economic uncertainty are also playing a role in companies’ future planning. In the Bank of Canada’s second-quarter business outlook survey, most firms reported they expect to maintain staffing levels and limit investments to routine maintenance over the next 12 months.

In the absence of substantial pay raises, employees should focus on training and development, mentorship and succession planning growth opportunities when available, Long says.

Also, with new pay transparency legislation arriving in Ontario in January, employees will be able to see compensation or a range of salary brackets for job postings offering less than $200,000. For employees living in the province, they’ll gain a better idea of compensation structures for current and prospective roles, she adds.