Canadian employees should expect smaller salary increases in 2026, as organizations scale back compensation budgets due to lower inflation, a softer labour market, and reduced pressure to compete aggressively for workers.
New data from Gallagher and Normandin Beaudry shows that the average salary bump next year will fall to 3.1%, marking another step down from recent years when pay growth surged to keep up with the high-inflation environment.
2026 Salary Forecasts Show Slowing Wage Momentum
Gallagher Findings
According to Gallagher, the average projected salary increase (excluding freezes) is expected to be 3.1% in 2026.
This represents a decline from:
- 3.5% in 2025
- 3.8% in 2024
Normandin Beaudry Insights
Normandin Beaudry’s projections similarly indicate a cooling trend, reporting that the 2026 increase will be 0.1 percentage points lower than in 2025.
These figures suggest organizations are gradually returning to pre-pandemic compensation norms, where salary growth was steady but not inflated by labour shortages or price shocks.
Shift Back To Pre-COVID Pay Patterns
Caroline Long, Vice-President of Compensation Practice at Gallagher, explains that during the pandemic era, employees often saw raises that kept pace with surging inflation.
Now, with inflation steadily tapering off, the urgency to use high salary increases as a recruitment tool has diminished.
“We’re seeing returns to pre-COVID, pre-pandemic type increases,” Long notes.
While companies still care about retention, the urgency is significantly lower.
Gallagher’s research shows fewer employers ranking attraction and retention as a top concern:
- 62% in 2024
- 54% in 2025
- 50% in 2026
Additionally, only 32% of organizations have set aside extra budget for high-potential or at-risk employees, signalling more conservative compensation strategies for the coming year.
Cooling Job Market Reduces Pressure On Employers
Canada’s labour market has softened considerably, giving employers more flexibility to moderate wage growth.
Key Labour Market Statistics
- The job vacancy rate dropped to 2.7% in May 2025, its lowest level since October 2017, according to Statistics Canada.
- The unemployment rate has stabilized at 6.9%.
- In July, Canadians experienced a loss of 40,800 jobs.
- 1.6 million Canadians were unemployed that month.
- 23.8% were facing long-term unemployment (searching for work for 27+ weeks) — the highest level since February 1998, excluding pandemic years.
Long notes that because the job market is cooling, companies no longer need to react quickly with high salary offers to prevent employees from leaving or to compete with other industries.
Economic Uncertainty Further Influences Pay Decisions
Concerns about tariffs, economic instability, and future financial pressures are shaping employer decisions.
The Bank of Canada’s Q2 Business Outlook Survey reveals that most firms plan to maintain current staffing levels and restrict capital spending to routine maintenance over the next year — another signal of cautious budgeting.
Employees Encouraged To Seek Non-Monetary Growth Opportunities
In a period where salary increases may remain modest, Long advises employees to focus on:
- Training and upskilling
- Mentorship programs
- Succession planning
- Professional development opportunities
These avenues can support long-term career growth even when compensation growth is limited.
Ontario’s New Pay Transparency Laws To Increase Clarity
Starting January 2026, Ontario’s pay transparency rules will require employers to disclose salary ranges for job postings offering less than $200,000.
This change will give workers better insight into:
- Internal compensation structures
- Market-competitive salary levels
- Potential career advancement opportunities
Canada’s projected 3.1% salary increase for 2026 signals a clear shift toward more conservative compensation practices as inflation eases and labour market conditions stabilize.
Employers are prioritizing sustainability over aggressive wage competition, while workers may need to focus more on skill development and career progression rather than relying solely on annual raises.
As economic uncertainties persist, transparency initiatives — such as Ontario’s new legislation — will play a larger role in helping employees understand and navigate compensation trends.
FAQs
1. Why are salary increases slowing in Canada for 2026?
Salary growth is cooling due to lower inflation, a decline in job vacancies, and reduced urgency for employers to offer aggressive wage increases to retain talent.
2. What is the projected average salary increase for 2026?
Both Gallagher and Normandin Beaudry report an expected increase of 3.1%, slightly below 2025 levels.
3. How will Ontario’s pay transparency law affect workers?
Starting January 2026, employers must disclose salary ranges for jobs under $200,000, giving employees more visibility into pay expectations and potential career opportunities.