How do I Calculate Salary Increases?

Paying the right salary is extremely important to maintaining a top-notch team at your company. In fact, a recent study at PayScale found that the No. 1 reason employees leave their jobs is because they want higher pay.

Want to give your employees a raise, but unsure what it will look like for your business’s bottom line? It’s important to take stock of your financials, and figure out what it will cost you to give your workers a raise. Thankfully, it’s extremely simple to calculate pay increases, and you don’t even need a fancy raise calculator to do it.

Why Employee Raises are Important

There’s no point in sugar coating it: Pay is extremely important to employees. Surveys consistently find that Americans rank pay as one of their top considerations when making career moves.

Employers have taken notice. According to another recent survey by PayScale, 85 percent of companies plan to give raises to employees in 2020 (though 71 percent of those planning to give raises are offering a 3 percent or less increase).

That means if you aren’t planning to give at least a small raise to your employees, you could be falling behind the competition, and it could cause you to lose some of your best talent.

Plus, employees who feel good about their salaries tend to work harder, and show more loyalty to their companies. It’s important to make sure your employees feel valued for their time and efforts to grow your business.

Set Your Employee Salary Raise Criteria

How will you decide on the average pay raise for your employees? Will you go with a standard 3 percent across the board, or will you go with raises based on performance? A recent study by Willis Towers Watson found that top-performing employees earned a 4.6 percent average raise, compared with the 3.1 percent average workers receive nationwide. If you plan to offer a bigger raise to your best employees, make sure you do some salary research in your industry. That will help ensure you don’t lose your best people to your competitors.

Calculate Salary Increase In Seconds

It’s easy to calculate pay raise rates. All you need is your employee’s current salary, the percentage you plan to increase it, and a calculator.

Ready? Start with your employee’s current salary. For this example, let’s say it’s $52,000 per year, or $1,000 per week. Now, set the raise percentage. Let’s assume this is one of your best employees, and you decide to give them a 5 percent raise.

Now, we want to express your employee’s raise as a decimal. This will help us calculate the raise. A 5 percent raise in decimal form is .05. Meanwhile, a 20 percent raise in decimal form would be .20. Basically, whatever raise you’re giving from 1 percent to 99 percent can be expressed in decimal form: take the raise percentage, and put it on the other side of the decimal.

A few examples:

  • 1 percent raise becomes .01
  • 7 percent raise becomes .07
  • 10 percent raise becomes .10
  • 32 percenr raise becomes .32

Got it? Now, take that $52,000 and multiply it by your decimal.

$52,000 X .05 = $2,600 raise over the course of the year. That brings your employee’s total salary to $54,600.

How to Calculate a 3 Percent Raise

Calculating a 3 percent raise is no different from calculating any other raise. But this is important to know if you plan to do an across-the-board cost of living raise of 3 percent for your staff.

Let’s start with our example of an employee making $52,000. Using our formula, a 3 percent raise would look like this:

$52,000 X .03 = $1,560 raise over the course of the year. This brings your employee’s total salary to $53,560.