Salary revision, in simple words, means a process that leads to revising your salary. It should not be confused with salary increment. Salary revision can happen at any time in a fiscal year or review year. On the contrary, the salary increment procedure involves an annual appraisal cycle and is performance-driven, and it is once in a year activity and involves various evaluation stages. Salary revision is mostly person-specific, whereas salary increment is an organisation-wide exercise. Salary revision is mostly independent of the appraisal cycle and is influenced by various factors discussed below.
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Job performance is not the only metric considered for salary revision. Other contributing factors include general economic condition, the overall financial health of the organisation, employee qualifications among others!
Salary Revision request
Salary revision is independent of the appraisal cycle and can be done at any given time. In most cases, it is carried out for a handful of employees compared to salary increment, an organisation-wide exercise. Below are the major reasons an organisation does salary revision, or an individual can initiate salary revision requests.
- Business Impact: This is one of the most common reasons salary revision happens. It happens when an employee works so efficiently an organisation gains out of it. It can be winning new contracts or gaining more customers, improving the overall revenues. It can even be an outstanding unit performance where an employee is stationed. Senior management can revise their salary to acknowledge the efforts to motivate such an employee.
- Employee gaining qualifications: It is a known fact; better the employee, the better the company. In some cases, employees gain some qualification which is business relevant and enhance the skills too needed for the job. Also, many times organisations encourage their employees for higher education and sponsor the same. It is a win-win situation for both sides as employees upgrade their qualifications, and the organisation does not need to look for outside talent for the crucial role. Also, an increase in qualification will lead to a salary revision in some cases as the employee undergoes a transition in job responsibility.
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- Increase in responsibility: In some cases, if an employee takes up more tasks than assigned, that also leads to a salary revision in some organisations. This organisation wants to show their employees that they reward them for their efforts.
- Long association: Sometimes, people who stay in the organization for a longer time face the disadvantage of low salary as they don't meet the pay parity with time. The issue in pay parity comes when a new employee joins the organisation and, considering the inflation rate, gets more salary than the old employees.
In these cases, the organisation also considers revising the salary of their loyal employees to keep motivating them. Also, this type of exercise does not happen very often as the increment cycle takes care of the difference, but organisations still do a hygiene check every few years.
- Promotion: This is also one of the most common reasons for a revised salary. They also get a revised salary structure according to the pay band whenever someone gets promoted. In almost every organisation, change in the level is associated with some additional perks. It leads to the revision in the overall payout to the employee.
Salary Increment procedure
Salary increment is once in a year activity and is mostly associated with the individual appraisal cycle. As mentioned earlier, it is an organisational-wide exercise and hence done for every employee. The salary increment procedure is carried out based on the organisation's performance, unit performance, and individual performance. Since it depends on performance; hence this whole activity involves due diligence.
The salary increment procedure involves a hike in the employee's basic salary as most of the other salary components are associated with the basic salary. An increase in basic salary will lead to an overall increase in the employee's salary, which will get reflected in the salary slip. For example, if your salary increment is 12%, then your basic salary component increases by 12%, and all other associated components with basic salary increase accordingly.
Based on the above discussion, we can show the salary increment formula as below:
Salary Increment formula = ((Revised Basic Salary – Last Basic Salary)/ Last Basic Salary)*100
Consider your revised basic salary as ₹11000 per month and ₹10000 per month was your basic salary then salary increment would be as per the above formulae is calculated below:
Salary increment = ((11000-10000)/10000)*100
= 10%
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Salary Hike Calculator
Whatever may be the reason for a salary increase, it can be an increment or salary revision; everyone wants to know their salary hike. The below-mentioned section will help on how to calculate the salary hike.
Example 1: Ram has a CTC of ₹5.0 Lakh, revised to ₹ 6.3 Lakh. Calculate how much salary hike Ram has received.
Solution: Salary hike calculation can be done similarly to salary increment in an earlier section. The salary hike calculator formula is as given below:
Salary hike calculator formula = ((Revised CTC – Last CTC)/ Last CTC)*100
Salary hike = ((6.3-5.0)/5.0)*100
= 26%
Based on the above calculation, Ram has a 26% salary hike.
Example 2: Shayna has a CTC of ₹11.0 Lakh which after increment becomes ₹13.0 Lakh.
Solution: The salary hike calculator formula is as given below:
Salary hike calculator formula = ((Revised CTC – Last CTC)/ Last CTC)*100
Salary hike = ((13.0-11.0)/11.0)*100
= 18.1 %
Based on the above CTC hike calculator, Shayna has an 18.1% salary hike.
Arrear Salary
Arrears are an increase in salary carried forward from the previous months to be paid in the current month.
For example, suppose a revised salary letter or increment letter is received in the June month salary but is effective from April. In that case, the arrears will be calculated for April and May. Since already in July, the employee has received the revised salary; hence, the arrear is not calculated for July.
An arrear is a difference in the salary an employee receives carried forward from the previous months to be paid in the current month.
For example, Ravi has a salary of ₹10,000 in March, and he gets an increment of ₹ 5000 in April. The increased salary is reflected in June for Ravi. Since salaries get revised in April but actual processing happens in June. Hence, there will be arrears for April and May in the June payslip, along with the revised salary. For two months, the total arrear will be ₹ 10,000 (₹5000 for each month).
In the above example, we considered just the basic salary; any other components associated with the basic salary are also considered for arrear calculation. Post consideration of all the components as per respective company norms; the final amount is reflected in the employee's payslip. From the above, we can conclude that it is a straightforward calculation that we can even automate by incorporating an increment arrears calculator in excel.
Meaning of Compensation revision letter
A compensation revision letter is written to the employee for increment in their salary and stating that they are eligible for other benefits and bonuses from the company. It details the rules and policies too which generally a company follows. It provides an outline to the employee regarding the job and the stand between employment and the organisation.
A clear compensation revision letter states the position of an employee standing with the company along with other benefits like medical coverage and time off and will serve as proof of their commitment to the company. Moreover, it also details some of the critical clauses which an employee signs during joining and is supposed to adhere to them. It can be treated as a critical document and is the first document that an employee signs during their entry into an organisation.
Also, this letter details the change in the last withdrawn salary to the current salary, giving the details of all the salary components which have changed. In some cases, an organisation-wide change in the policy is also communicated through a compensation revision letter; for example, a change in the company name or change in the notice period that an employee needs to serve will get reflected in the compensation revision letter. This letter gains more importance as, and when an employee changes their job, this acts as proof of employment.
Also read: Basic Salary in India - Explained with Calculation
Conclusion
Salary revision is simply revising your salary. It can happen any time of the year and is specific to you. Arrears are increased salary, which is carried forward from the previous months to be paid in the current month. We have extensively talked about salary revision, its procedures, how it is calculated and arrear recovery. We hope you found this information genuinely helpful.
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