written by | May 9, 2022

How to Calculate a Salary Pay Raise?

Salary pay raise means an additional pay raise above CTC. CTC is the yearly expenditure that a company spends on an employee. Whenever you are searching for new job opportunities, you must indulge the recruiters well enough to get the salary pay raise sum, and if you are in the same company, it will be on par with your performance.

Thus knowing your percentage pay raise is vital in the long run. The percentage will help you compare your salary increment to other forces like the cost of living inflation. They are mostly expressed in percentage figures, and salary pay raises tend to vary based on inflation, location, sector and job performance.

Using a pay raise calculator will also help compare your current salary to what other employers are paying in other firms.

Did you know?

Employees in India are likely to get an average salary hike of 9.9% in 2022, the highest in five years.

Also Read: Salary Revision in Jobs and Recovery of Arrears

How to Calculate Salary Hike Percentage Online?

How to Calculate the Percentage of Increase in Salary?

How, why and when a salary pay rises are commonly asked question. The involvement of money does not leave any room for misinterpretation by the employer. Only one system applies to everyone, where exceptions are present but rare and justified. To stabilise an efficient system that ensures everyone is compensated fairly, one needs to cover many areas. The following answers to all the important questions for putting a salary pay raise system in place are given.

The Norm for Salary Increase Preliminary to giving out salary pay wage increases to employees, most proprietors analyse salary increment standards to standardise the basis for a salary raise. It guides the employers to determine among varying types of salary pay raises.

You are allotted increased salary pay raises based on the following factors:

  1. Expense of living
  2. Merit
  3. Time of service
  4. Retention

Expense of living

When inflation increases the value of economic consumption, money loses its value instantly, and the expense of living rapidly rises. As the expense of living is highly unstable, the wages employers offer should see an upsurge.

Employers also see fit to grant a hike in salary so the employees can keep up with their raise in the expense of living. The living expenses rapidly increase due to inflation and are unavoidable for employees, regardless of performance.

Merit

Employees also get a salary hike based on the worthiness of their work. A person who undertook more work or put in new expertise or goodwill is rewarded. For example, a person who becomes a managerial head will surely get a salary pay rise. Raises rested upon the excellence of work done are not universal or frequent in the company. If one does get a raise based on the performance, the salary pay raise may be different from the performance of other employees. Thoughtfully analyse the raises based upon merit. Conclude which employers best meet your personal goals.

Time of Service

Raises are also dependent upon the employee's longevity of service. How much time have they given to the company? Employers give a salary pay raise to people who can achieve certain landmarks in the firm, for example, staying with the firm for ten years. It reflects that the employers value your services and are willing to keep you around for the upcoming years.

Retention

Firms also pay salary pay raises to avoid insurgency. It has a drastic implication for the business, and it causes huge wastage of resources and time, leading to a severe decline in an employee's self-esteem. The firms must resolve insurgency from affecting their business.

Imparting raises won't resolve turnover issues. Still, it's a strategy multiple firms use. It's difficult to understand sometimes whether an employee is leaving because of a higher income somewhere else or for new work opportunities. Regardless, it's crucial to know if a salary pay raise impacts maintaining and losing high professional workers.

How Frequent Should the Raise Be?

The regularity of getting pay raises varies. Some firms decide to grant yearly or semi-yearly salary increments. Other firms give pay raises to employees instead of their extra hard work. Other businesses withhold giving a raise unless and until an employee has stayed for a good period with the company. Frequent raises based entirely on time spent in the company is also one norm. Some firms grant a stable raise, and it happens annually or bi-annually. They are impartial to the employee's work.

In these types of firms, top-performing and low-performing workers get the same raises, and there are not many criterias to earn them other than working for the company for a certain time. They're the least hectic to earn as they release the employers of any responsibility of keeping a record of the workflow. Although raises of such kind are barely seen in the private sector – the private sector would not indulge in losing money unnecessarily. More importantly, these kinds of raises demotivate employees. If everyone is getting the same pay raise, then there is no need for anyone to work hard since they won't be rewarded differently.

For a similar reason, the public sector uses this method. As the government yearly raises the cost of living arrangements such as utility bills, various taxes and increases prices, it becomes mandatory to match the salaries. Public employees include teachers, doctors, police officers and sanitation workers (janitors, cleaners, etc.). In their situation, they earn much less than their acquaintances in the private sector, so an annual or bi-annual pay raise of around 2.4% makes sense in the long run if they have to survive.

Salary Increment Based on Market Demand and Internal Value

Every employee has a market price, their worth in the job market, and an internal value, how much they are contributing to the firm. These facts also reflect on an employer's salary pay raise decisions.

Whenever the demand in the market for an employee's skill set rises, employees will look for better options in other firms, as the price for these employees has risen. If there aren't enough professionals in a certain field, their market value will increase continuously. In that case, a raise is necessary to prevent the person from leaving the job.

An employee who has stayed in a company for many years, and the data shows that they've been of great importance to the company, should be rewarded highly. A salesperson with ten years of experience is worth more than the one with four.

An employee's work ethic towards a company can change efficiently when one starts to do more demanding projects that require them to step up their work ethic. Their job description will also change to a degree. When the employers notice that such projects are continuing and the employees can manage them, a pay raise is more than applicable to such employees. However, if the project is a one-time opportunity only, then a large bonus compensates for a permanent pay rise.

Also Read: Basic Salary in India - Explained with Calculation

The Steps to Determine Salary Pay Rise

By what means the salary increment percentage is calculated?

In seconds, you can figure out how much your salary will rise.

Calculating salary raise rates is simple. All you'll need is a calculator and your employee's existing wage and the percentage you intend to boost it by.

Ready? Begin with the current wage of your employee. In this scenario, suppose it's ₹39 lakhs per year or ₹76,000 each week. Set the percentage increase now. Imagine it's one of your top performers, and you choose to reward them with a 5% increase.

We'll now convert your employee's increase to a decimal. This will aid in the calculation of the rise. In decimal notation, a 5% increase is.05, and in decimal notation, a 20% increase would be.20. Basically, every raise from 1% to 99% may be stated in decimal form by taking the percentage of the raise and multiplying it by the number of decimal places.

How to Work Out a 3% Increase?

Calculating a 3% raise is the same as calculating any other increase, and this is vital to understand if you want to give your employees a 3% cost-of-living raise across the board.

Let's take the case of a ₹39 lakhs per-year employee. A 3% increase would seem like this using our formula:

Over the year, an increase of ₹39 lakhs X.03 is  ₹11,70,000. This takes the total salary of your employee to around  ₹40 lakhs.

An easier way to calculate it if you're running low on time is also elucidated.

The steps are as follows:

  1. Minus the new CTC with the old CTC.
  2. Divide the amount by the old pay offered.
  3. At last, go ahead and multiply the amount by a hundred.

Hence the salary increment percentage is calculated.

The Salary Increase Percentage Formula

The percentage calculation formula is as follows:

New salary minus old salary divided by old salary multiplied by 100 equals a percentage increase.

  1. Multiply current salary with the percentage of a salary pay raise.
  2. Divide the result by a hundred.
  3. Add the result with the current salary.

Conclusion

Salary pay raise calculation is quite easy, and when and how you decide to ask for those raises while maintaining your integrity is difficult and needs to be established beforehand. With so many different industries and their constant fluctuations, it becomes impossible to consider a universal standard for pay raises, so plenty of companies decide on frameworks that reflect the job market and their industry's standards. 

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FAQs

Q: Is a salary hike given to CTC?

Ans:

The hike is generally done on base salary, and the CTC hike follows from it.

Q: Is a 30 percent salary hike above average?

Ans:

If an employee gets less than 35%, it is not worth it. Although, expecting a 30% hike is normal and expected.

Q: Why is the salary increment given?

Ans:

Salary increment is crucial to acknowledge an employee's improved competence or skills.

Q: Define salary hike

Ans:

An increase in wages is called a salary hike.

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