How to Calculate Salary Increase Percentage for Your Employees

It is critical to know How to Calculate Salary Increase Percentage your Employees will be receiving to keep your employees’ payment structures competitive and fair. In the case of rewarding top achievers considering inflation or looking to stay competitive with the market, the need to determine salary increments becomes inevitable hence ensuring fairness in the organization. In this guide, we will be teaching you How to Calculate Salary Increase Percentage for Your Employees with all the necessary steps so that you can make the right choices for your employees and your business.

SHRM also determined that fewer employers are considering giving pay raises in 2024 instead of 2023. Even so, 79% of businesses still plan to do pay raises.

About retaining your top employees, offering to raise salaries might be an option to consider. Know when policies towards pay raises are applicable, how percent increases in the formation of wages are done, and the general principles that govern procedures for giving out raises.

Criteria for Calculate Salary Increase Percentage

Before rewarding their staff with pay increases, the majority of employers first make a guideline that contains the criteria for the grant of such salary increases. This important HR process helps you choose between the different categories of pay.

Salary rise justification should meet the following clustering parameters:

Cost of living raises

As inflation occurs and prices of goods and services increase, the value of currency decreases, and so does the standard of living. Living expenses are subject to constant change; hence, even the salary you pay to your staff may, too.

You may give an increment to your employees so that they should be able to meet the expenses that are rising due to inflation. Housing and city allowance may be provided even when there are no performance improvements against specified ‘expectations’.

For instance, when we talk about the cost of living, you may look for the Social Security Administration. A cost-of-living adjustment (COLA) is an increase in the benefits of Social Security to keep pace with the economy. The COLA for 2024 is 3.2%. This adjustment is annual; that’s why offering a 3.2% increment would be ideal.

Merit-based raises

A measure of discretion can also be used to provide a salary increase. Perhaps you have an employee who assumes extra duties or who has acquired a new skill or position with your company. For instance, most of the employees would be ready to give a pay raise to the one who becomes a CPA.

Merit-based increases in salaries may not be practiced across the board. If you prescribe this policy and award all your employees a raise, you might do so in different amounts based on a portion of equity in every employee’s performance. The process of meritocracy ought to be carefully administered, especially regarding the grant of increments. Share with your team the information about those employees whom you think achieved the strategic objectives of the company best, who provided the greatest contribution, and who delivered more than the job description. Maintain these records in the files to affirm or justify your decision.

One advantage of this system of merit-based salary increases is to motivate the other employees towards better performance. If There is No Salary Increase For A While, An Employee May Be Asking Themselves What More They Can Do To Their Work So That A Salary Increase Can Be Granted.

Length of service raises

Another factor in salary increases may be the employee’s length of service at her present company. What is the tenure with her present employer?

You may want to reward such employees with a pay increase after certain periods, like five years of service in which they have been with your company. This demonstrates to workers that their time is taken into consideration and that they would like to keep them for a few years to come.

Retention raises

You can also give promotions to stop the turnover of your employees. Employee turnover is not good for your business and can be costly in both time and money. In addition, it can affect how the employees feel about their company and its prospects. Thus, it would be wise to take measures to make sure that turnover does not affect your business.

Even though there are freely given pay raises, they will not be enough to erase all the coping mechanisms in employees; this is a tactic that most organizations are willing to apply nonetheless.

Some workers quit their jobs for monetary reasons they survey (40% of the surveyed workers) leave to join a company that offers them arrears by 10% and above, while a broad focus on development goes away to look for better ambitions.

Continue performing such assessments and meetings occasionally to see if finances are among the reasons why an employee is unproductive or is actively seeking another employer. Check if the salary increase is the one determinant that will sway the balance towards the employer retaining top personnel rather than losing them.

How much should a pay raise percentage be?

Determining the amounts of pay raises for employees may at times be a challenging task. If you need assistance in calculating the employee raise percentage amounts, use pay raise statistics: Calculate Salary Increase Percentage

Pay raise statistics:

• The average official increase in salary for the majority of the employees within the firms who meet the goals is three percent.
• Average raises of 3.5% are planned by U.S. employers for merit increases for employees, while average raises of 3.9% are projected for total salary increases for non-unionized employees.
• As stated previously, the cost of living adjustment (COLA) for 2024 will be 3.2%.
• The consumer price index (CPI) is higher by 3.2% compared to the previous year.

You might choose to budget the increase for your employees at more or less than these increments based on regard to their geographical area, performance, and budget.

Location: In which location is your business located? What about your employees? If there are possible locations to relocate to, try to estimate the average cost of living in those places and how that affects raise amounts.

Merit: How do employees contribute to the value of your business? What is the return on investment (ROI) of such employees? Calculate the ratio of employee contribution to employee compensation using appropriate human capital metrics.

What you can afford: The increase rate that you accord also varies with your sector. In case the profits are on the higher end, you will opt to increase the amount. However, if you are having difficulty meeting business expenses, you may wish to refrain from providing any wage increases for employees.

How often should an employee get a salary raise?

How often you decide to grant your employees raises will also differ. Some companies choose to plan and award pay raises every year or half a year. Some give pay increases as and when the employees have earned them. Other businesses prefer to hold back on giving raises until the employees have been with the company for some time.

In this case, however, be wise and do not rush to give too many salary increases without taking into account the profits of your company.

How to calculate a salary raise

Eager to understand how to calculate the amount owed after giving a pay raise? Well, you may follow two methods regarding the calculation of the salary increment:

1. Flat raise
2. Percentage increase

How to Calculate Salary Pay Increase Flat Raise

In the case of a flat raise, you take the employee’s salary and declare how much more money you are willing to spend on this specific employee.

To find out how much the raise adds to the employee’s gross pay on a weekly or biweekly basis, you can use 52, 26, 24, or 12 in place of 1, i.e., you can compute the weakness or the allowance on an annualized gross basis.

Example

Imagine that the employee’s yearly gross salary is 40,000 dollars. In their country, they also take gross weekly wages of 769.23 dollars (40,000/52). You decide to grant them 4,000 dollars more on their annual stipend. You would like to know how much their updated week’s salary would be and how much additional cash they will be getting every week.

• First, let’s add the raise to all gross wages: 40,000 + 4,000 = 44000.
• Now, divide those figures by the number of weeks in the year: 44,000/52 = 846.15.
• Lastly, they will come to the amount that is equal to or higher than the new weekly wages and subtract the higher weekly wages from the higher weekly wages into which they would have modified 846.15 and 769.23–76.92.

The new annual salary for the employee is 44,000 dollars. Their revised weekly paycheck is 846.15 dollars, which is 76.92 dollars above their weekly wages.

How to Calculate Salary Pay Increase Percentage

Ready to learn how to compute the raise of an employee with the percentage method? With a percentage increase, you might:

• Be aware of the percentage by which you ought to increase your salary.
• Be aware of the new salary you desire the employee to be paid.

You know the salary raise percentage you want to give.

To calculate a percentage increase in employee wages, divide the increase by the current wage and multiply it by the annual gross salary.

New Salary=(Old Salary X Raise%) + Old Salary

Once more, you would be able to think about the increment in the paycheck of the employee by taking the employee’s salary and dividing it over the week (52) every other week (26), twice a month (24), or once a month (12).

Example

Consider a 3% raise for an employee, currently earning $50,000 per year and biweekly payments of $1923.08. Calculate the raise, new annual wage, biweekly salary, and the change in biweekly pay, considering the employee’s current salary and biweekly payments.

• To begin with, the raise in the salary, which is in percentage, needs to be multiplied by the current annual wages of the employee: $50,000 x.03 = $1,500.
• In the following step, the increase in the employee’s annual salary needs to be explained: $50, 000 plus the increase of $1,500 equals $51,500.
• The portion of the year for the employee’s annual salary should always be calculated by dividing it by twenty-six. $51,500= $51,500/26= $1980.77.
• The bi-weekly salary increase of the new salary compounds is taken, and the bi-weekly payment made towards the earlier salary is subtracted from it. $1980.77 – $1923.08 = 57.69.

The increase applicable to the employee’s biweekly pay is just a lump-dollar amount. $51,500 is the gross annual salary that was rounded up to 3,000,000. The biweekly paycheck remit is, however, $1,980.77, an increase of $57.69 from the previous wages.

Simply wish to calculate the biweekly incremental amount of the employee? Check the employee’s last biweekly pay slip and:

• Take the employee’s previous biweekly paycheck as the default and apply the determined opportunity percentage: 1923.08 (raise worth negative) = 57.69 (bi-weekly raise amount)
• Then, increase the most recent biweekly paycheck of the employee by the biweekly raise amount. = 57.69(1901.08+1) 1980.77

Whatever you are comfortable with, you may use that also. But keep in mind that you may notice small discrepancies due to the rounding off (for example, $0.01).

You know the new salary you want the employee to receive.

You may well decide what the new employee’s wages will be; however, we wish to find out how much of a raise percentage increase.

• To find out the percentage of an employee’s raise, you will use the following formula:
• Percent Raise = (New Salary – Old Salary) / Old Salary * 100

Example

Let’s take the abovementioned example once more. An employee’s basic pay now stands at $50,000. You make the new annual salary, about their current salary, $52,000. Now you wish to calculate their percent increase based on the formula explained above.

• [($52,000 – $50,000) / $50,000] X 100 = 4%

Proceed step by step:

• To begin with, calculate the amount of the salary increase that the employee has gotten: 52,000 minus 50,000 = 2000.
• Then you need to use this figure and fractions by the old salary: 2000/50000 =.04.
• To convert this figure in percent, one needs to multiply it by seventy-five: 100 x 0.04 = 4.
• As a result, an employee receives a 4% increase in salary.

What to do if you forget to account for a pay raise

What happens when you fail to apply these post-pay adjustments and then forget to raise an employee’s wage? This calls for paying the employee retrospectively.

Retroactive payment is when an employee is paid a lower wage than they were entitled to in a previous period.

To calculate this discounted wage, the first thing that you do is to figure out how much the employee is owed as compared to how much he is paid.

Example

Let’s choose a certain amount of an employee’s previous wages, for instance, 1,923.08. Let’s offer the employee new wages equal to $2000. You didn’t remember to pay the employee his or her newly earned wages for one pay period. To do that, subtract this wage from that wage.

• $2,000 – $1,923.08 = 76.92

Accordingly,  the amount you owe to the employee standby in the resting period is $76.92.

In case you fail to pay a raise impacting pay in pay periods or more periods, then pay kind of intervals would be the number of times the difference between new and old pay would appear.

For illustration, you forget to include their new wages in three pay periods. Their retro pay would be:

• $76.92 x 3 = $230.76

Thus, you would be owing the employee this much amount of $230.76 retro pay. Don’t forget to deduct the tax from the retro pay.

What if you can’t afford a pay raise increase?

Raising funds is not the ultimate solution for many toilers. Other forms of benefits that many employees hold in high regard include:

• Ability to work from home;
• Alternative hours;
• Days off with pay.

If a pay increase is not a preference, you have other options that can offer financial relief, such as bonuses or possibly a profit-sharing plan.