How to Calculate Salary Increase Percentage in 2024

Knowing how to calculate salary increase percentage is important in today’s competitive market. A 2024 report shows that 70% of people feel their salaries aren't keeping up with inflation and want higher pay. This ongoing issue pressures business, making salary adjustments key to staying competitive and keeping top talent.

This guide discusses how to calculate salary increase percentage, explains its importance, 2024 averages, key criteria, and benefits to attract and retain top talent. It also covers how Salary.com's Compensation Planning Software can automate the process.

What is a salary increase?

A salary increase is a raise in a person's wages or earnings. It can be a fixed amount or a percentage of their current salary. These increases are usually given for good performance, to adjust for inflation, or to stay competitive in the industry.

Salary increases can be implemented through two common methods:

• Flat raise: A fixed amount added to the salary.

• Percentage increase: A percentage added to the current salary.

To calculate a percentage raise, convert the percentage to a decimal and multiply it by the current rate. Add the increase to the original rate to find the new rate. For example, a 5% raise on $20 an hour adds $1, making the new rate $21 an hour. A 3% raise on $15 an hour adds $0.45, resulting in a new rate of $15.45 an hour.

A key feature of Compensation Planning Software is its ability to automate complex compensation calculations, including salary increases. It provides a "recommended increase" based on the employee's performance.

Why is it important to calculate salary raise?

Learning how to calculate salary increase percentage is a must, especially due to the benefits it brings when done correctly, such as:

• Ensures fair pay based on performance, experience, and market value: Accurate salary raises ensure employees are paid fairly by comparing their performance to industry standards. This keeps pay fair and motivates employees.

• Supports career growth: Accurate salary increases support career growth by rewarding progress and skills. This motivates employees to keep learning and feel valued in their roles.

• Helps employees manage their finances better: Correct salary increases help employees plan their finances better. Fair raises lead to financial stability, reducing stress and improving job satisfaction, which makes employees more focused and productive.

• Keeps the company competitive in the job market: To keep top talent, companies need competitive salaries. Aligning pay with market trends helps attract employees, reduce turnover, and build a strong team.

The key benefit of Compensation Planning Software is that it saves time by removing manual work. It keeps important elements like pay-for-performance formulas, data validation rules, eligibility, and proration formulas, which are essential for salary raise calculations.

Key criteria for a salary increase

To calculate salary raises, companies need to consider the key criteria such as:

Employee performance

Salary increases are usually tied to how well an employee does their job. This means meeting goals, doing quality work, taking initiative, and getting positive feedback. Employees who perform well and make significant contributions are more likely to get a raise.

Experience and tenure

Experience and tenure refer to how long an employee has worked at the company and their relevant work history. Employees with many years of service or significant experience may receive higher salary increases due to their loyalty and expertise.

Market rate

Market rate is the average salary for similar jobs in the industry and area. Companies compare their salaries to these rates to stay competitive and attract and retain talented employees.

Qualification

Qualifications include an employee’s education, certifications, and special skills. Employees with advanced degrees, certifications, or unique skills often earn higher salaries because they bring extra value to their job.

Company performance

Company performance is about how well the company is doing financially. When the company is doing well, it may give bigger salary increases. If the company is struggling, raises might be smaller or not given.

Salary increase statistics

According to the U.S. Bureau of Labor Statistics, compensation costs for civilian workers in the United States increased by 0.9% for the three-month period ending in June 2024. Over the past year, compensation costs rose by 4.1%, with wages and salaries increasing by 4.2%.

In addition, a recent survey projects that U.S. employers will allocate an average pay increase budget of 4.1% for 2024, with an average merit increase of 3.6%. Another 2024 report indicates that organizations expect an average base pay increase of 4.5%, showing a positive trend compared to the previous year.

Looking ahead to 2025, salary budget increases are expected to be around 3.9%. Another source forecasts a slightly lower increase of 3.8%, while a different survey anticipates a more modest average increase of 3.5%.

How often should an employee get a salary raise?

The frequency of salary raises depends on factors like company performance, individual performance, industry standards, and economic conditions. While most employers give an employee’s raise of about 3% per year, some may adjust this based on specific circumstances.

For example, outstanding performance might lead to more frequent raises, while economic downturns could result in fewer or smaller increases.

Using Salary.com's Compensation Planning Software maximizes agility and allows you to implement innovative strategies, including salary increases.

How to calculate pay raise percentage

Learning how to calculate salary increase percentages can be easy if you know the formula; you don't need a pay raise calculator. Formula: New Pay = Current Pay × [1 + (Percentage Increase / 100)]

1. Step 1: Identify the current pay

   Determine the employee’s current salary, which is the amount they earn before any increase. For example, if the current salary is $1,000, then $1,000 is the amount you start with.

2. Step 2: Convert the percent increase to a decimal number

   Next, convert the percentage increase into a decimal format. This is done by dividing the percentage increase by 100. For example, if the percentage increase is 3%, convert it to decimal by calculating 3/100 = 0.03.

3. Step 3: Add 1 to the salary increase decimal

   Add 1 to the decimal number from Step 2. This step adjusts the formula to calculate the new monthly salary by incorporating the increase. For example, if the decimal value is 0.03, add 1 to get 1.03.

4. Step 4: Multiply the result by the current salary

   Multiply the result from Step 3 by the current salary to find the new salary. For example, if the current salary is $1,000 and the result from Step 3 is 1.03, then the new salary is $1,000 × 1.03 = $1,030.

   Alternatively, calculate salary increase by converting the percentage to a decimal, multiplying it by the current salary, and adding the result to the old salary.

   For example, if the current salary is $1,000 and the increase is 3%, first convert 3% to 0.03, then multiply $1,000 by 0.03 to get $30, and finally add $30 to the old salary, resulting in a new salary of $1,030.

Say goodbye to tedious manual computations in Excel and embrace the advancement of Compensation Planning Software. This revolutionary tool helps facilitate the administration of pay raises, bonuses, commissions, long-term incentive awards, equity, and employee total rewards statements across the organization.

Benefits to offer aside from salary increase

Budget limits can make it hard to offer annual salary increases. Instead, provide valuable benefits to attract and keep top talent. Here are some options:

1. Spot bonus: A one-time cash reward for exceptional performance on a project.

2. Health and wellness benefits: Free gym membership or wellness programs.

3. Retirement benefits: Employer matching contributions to a 401(k) plan.

4. Work-life balance benefits: Flexible working hours or remote work options.

5. Learning and development benefits: Paid training courses or tuition reimbursement.

6. Perks and incentives: Free meals or a company car.

Compensation Planning Software simplifies sharing employee benefits. The tool provides personalized total rewards statements, consolidating all compensation and benefits data for clear communication.

Organizations need to know how to calculate salary increase percentage to budget and plan compensation effectively. Accurate calculations ensure fair pay adjustments, align with market standards, and boost employee satisfaction and retention. Use Compensation Planning Software for accurate calculations—simply input the data and the software will automate the process.