How to Figure Out a Salary Percentage Increase

When performance review time rolls around, high-performing employees and even those who are considered satisfactory workers are anxious to learn how much of a raise they'll receive. In some companies, employees are told what percentage raise they earned, but some supervisors just tell the employee, "I'm giving you a $3,000 raise this year."

When the salary increase is in dollars, it's always a good idea to convert that to a percentage. The reason is because you can easily track the percentage and tie it to the employee's performance rating, or track the percentage increases over a period of time even if it's not tied to the employee's rating.

Confirm Employee's Current Salary

Check with the human resources department or payroll processor to determine what the employee is currently earning. Double check that you are getting the full annual amount and not the employee's to-date earnings. If this salary increase is based on a performance rating, the review or evaluation should indicate the employee's pay rate. Salaried employees will have an annual figure, and employees who are paid an hourly wage should have the correct base hourly wage – not including overtime – on the performance review.

Speaking of overtime, for hourly employees, do not include overtime pay when you record the employee's annual earnings. An employee's salary or wage increase should be based on the base amount. That goes for employees who receive commission pay too. When you are calculating an increase, calculate the percentage increase on the employee's base salary, not including commission payments.

Converting Dollar Figure Raise to Percentage Increase – Salaried Employee

Once you have the employee's current salary and the dollar figure by which her salary is going to increase, you're ready to calculate the percentage.

Consider this scenario for a salaried employee:

  1. An employee's current annual salary is $50,000, and she earns a $2,500 raise, her annual salary will increase to $52,500.
  2. Divide $2,500 by $50,000 and the result is 0.05, which is 5 percent (2,500/50,000 = 0.05). 
  3. To double check your math, multiply $50,000 by 1.05, and the result is $52,500 (50,000 x 1.05 = 52,500).

Converting Dollar Figure Raise to Percentage Increase – Hourly Employee

If you are calculating an hourly employee's wage increase using the dollar figure, use two steps to calculate the new hourly rate, and then multiply by the numbers worked in a year to calculate the annual pay.

Consider this scenario for an hourly employee:

  1. An hourly employee who earns $27.63 an hour is being promoted and her hourly rate will increase by $1.25 per hour.
  2. Again, divide 1.25 by 27.63 and the result is 0.045, which is 4.5 percent.
  3. Her new hourly rate will be $28.88, so double check your math. Multiply her currently hourly rate by 1.045 (27.63 x 1.045 = 28.873, which you can round up or not, but if you round up one employee's earnings, do it for all of your employees).
  4. To determine the hourly employee's annual earnings, multiply $27.63 by 2,080, which is the number of hours for many full-time employees (27.63 x 2,080 = 57,470.40).
  5. Her new annual pay is $60,070.40 (28.88 x 2,080 = 60,070.40)