How to Calculate Percentage Increase in Salary? A Complete Breakdown

Got a raise or promotion or accepted to a high-paying job? 

We know you’re curious to know the salary increase percentage based on your previous income, but how to calculate the raise percentage? We have explained the entire method in this blog. 

So whether you want to compare your new income to the inflation rate or plan out a new budget, read this blog to learn how. 

How to Calculate Raise Percentage in Income?

There are two straightforward options by which companies determine the salary increase of their employees. These are: 

• Flat wage increase method 
• Percentage increase method 

How to Calculate a Raise with Flat Wage Increase?

In this, the employers generally set the amount the employee will get after a certain period. It is also displayed on the contracts signed when joining the organization and once the period is over, you’ll get a pay raise based on performance or inflation.  

For example, your employer offers a starting salary of $20,000 and a stated increase to $26,000 after a year. To determine the flat raise, you need to find out the difference in your monthly wage. 

Initial Salary: $20000/12= $1666.6

New Salary: $26000/12= $2166.6

Increase: Initial Salary-New Salary = $500

Once you get the appraisal, you’ll be getting a hike of $500 in your monthly income. 

How to Calculate a Raise with Percentage Increase?

A percentage increase is given to employees after a certain period. The employees take into account cost-of-living, added responsibilities, duration in the company, and many other things to calculate the salary increase percentage. 

Raise percentage calculator formula: 

(Current Pay/ 100) x (100+ Percentage Increase) 

Let’s say, your current salary is $25000 and your employer has promised a 10% hike. 

(25000/100) x (100+10) = 27,500

You will get $2,500 extra annually in your new income. 

So these are the methods by which the raise is calculated for every employee. Moving ahead, let’s look at the deciding factors for calculating the hike in the next section. 

Criteria to Calculate Raise Percentage

Note that the raise you get is not given arbitrarily; instead, the company lays out a compensation plan for each employee. There are certain criteria by which the employers calculate the raise. Let’s discuss them here. 

Increase Based on Merit 

Pay raises tied to good performance assessments are a good way to encourage the team and ensure that top performers get fairly compensated for their work. In addition to any cost-of-living raise provided, a merit-based boost might be granted in small amounts.

Increase Based on Employee Duration in the Company 

Pay increases based on the tenure of the job help companies keep their most dependable employees longer. These employees are continually spelled out in agreements for a predetermined amount of time and are awarded a percentage as a token of appreciation for their devotion. For instance, in addition to the regular cost-of-living rise, an employee may earn a specific percentage after five years of service.

Increase Based on Cost-of-Living 

Employees may receive cost-of-living raises regularly or as a one-time payment to meet unforeseen expenses. The company tries to help employees with their financial well-being to keep up with the growing costs. The increase may be based on the U.S. Consumer Price Index or equal to the percentage utilized for Social Security adjustments. 

Qualification 

If you learn a new skill to contribute to the work or present a degree or certification, the employer may consider it while determining the raise. 

You can take multiple courses on finance, data analytics, and other topics here to upgrade your skill set. 

These are the main criteria used for deciding the percentage increase. To get good numbers, you must stay updated, learn new skills, and do regular market evaluations to check for fair pay. 

How to Calculate Salary Increase Percentage Based on Inflation? 

You know, inflation has a direct impact on the cost of living as the prices of goods and services go up. You can research the current inflation rate and determine its effect on your increased salary. For this, you can use the CPI inflation calculator to compare the purchasing power between the years. 

Please note that you must accept the increase at a level that allows you to survive high inflation. 

Alternatives of Salary Increase Percentage

Sometimes, employers face difficulty giving the promised increase to the employees even after an excellent performance due to factors like the company’s financial condition. In those cases, they can compensate by giving other alternative benefits, like: 

• Increased paid time off
• Work-from-home opportunity 
• Adding more employee benefits 
• Profit sharing plan
• Flexible working hours 

In case you aren’t getting a hike as expected, the employer has agreed to give you other benefits and if you like working and feel appreciated by the company, you can go for it. However, if your priority is your income, you can find other high-paying jobs. 

So this was all about how to calculate the pay increase percentage and the factors considered. We hope this blog has simplified the calculation for you. Use the formula every time you are expecting a wage increase. Also, don’t forget to share it with your friends and family to make them aware!

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