How to Calculate Percentage Increase in Salary: A Guide

Understanding how to calculate the percentage increase in salary is essential for both employees and employers to ensure fair compensation and informed financial planning. Recent data indicates that U.S. employers are budgeting for average pay increases of approximately 3.8% in 2024, a slight decrease from the 4% average in 2023.

This guide will explore the criteria for salary increases, appropriate raise percentages, the frequency of pay adjustments, and provide a step-by-step method for calculating salary percentage increases.

Criteria for a salary increase

Organizations frequently evaluate several important criteria when considering salary percent increases:

• Performance and contributions: Employees who consistently present outstanding performance and make substantial contributions to the organization's success are the most probable candidates for a merit-based salary increase.

• Company financial health: The number of raises that a company can afford to offer employees can often be determined by fluctuations in revenue streams. Compensation increases, including the typical annual pay raise, are significantly influenced by the company's financial standing and budgetary constraints.

• Tenure and experience: Employees with long tenure and experience may receive raises to acknowledge their contributions and dedication to the company. Recognizing their loyalty through salary increases can enhance job satisfaction, improve retention, and motivate others to strive for long-term commitment.

• Legal and compliance factors: Adhering to laws such as the Fair Labor Standards Act (FLSA), and the Equal Pay Act is crucial. Implementing clear performance evaluation systems and maintaining documentation of performance criteria and pay raise decisions can help demonstrate compliance with these regulations.

By diligently considering these criteria on job evaluations, organizations can implement fair and effective salary increase policies that motivate employees and support organizational success.

How much should a pay raise percentage be?

Salary increases are influenced by factors such as the economy, industry trends, and company budgets. Many organizations set annual salary raises between 3% and 3.5%, a range supported by 2023 data. However, actual increases may vary based on company performance, employee roles, and market conditions.

Insight into wage growth trends is provided by recent findings from the U.S. Bureau of Labor Statistics (BLS). In comparison to the 4.3% increase in December 2023, compensation and benefits for private industry employees increased by a percent increase of 3.7% over the 12-month period concluding in December 2024.

Companies may need to modify the compensation increase budgets to remain competitive and equitable, even though a 3% to 3.5% annual increase has been a common benchmark. In accordance with the most recent economic data and industry trends, employers should conduct routine evaluations of their compensation strategies.

Formula for percentage increase in salary: % increase = [(new salary - old salary) / old salary] x 100

How often should an employee get a salary raise?

Salary increases depend on company policies, worker efficiency, and financial factors. Many companies adjust pay during annual reviews based on performance and resources. By establishing clear guidelines for determining compensation, it is possible to mitigate bias and guarantee consistency in the evaluation of employees.

In the federal government of the United States, General Schedule (GS) employees may receive within-grade increases (WGIs) upon the completion of specific holding periods and the demonstration of satisfactory performance.

Pay raises vary based on a company's finances, employee tenure, and job performance. A good compensation management strategy can create advantages that offer a distinct edge over competitors while keeping company expenses under control.

How to calculate percentage increase in salary

To calculate percentage increase in salary, follow the formula:

% increase = [(new salary - old salary) / old salary] x 100

Here’s a detailed breakdown:

1. Step 1. Determine the current salary and new salary

   Identify the current salary and the new salary of the employee. This could correspond to their annual pay, monthly wage, or any other time-specific amount.

   

   Let’s say a company gives an employee a total compensation of $40,000 per year, including benefits. After 4 years of working in the same company, the employee is now eligible for a salary increase with the new salary be $50,000 per year.

   In this example:

   Current salary/old salary = $40,000

   New salary = $50,000

2. Step 2. Deduct the previous salary from the new salary

   Finding the difference can be achieved simply by deducting the two values.

   In this example, we know that the current salary of the employee is $40,000, which will be considered as the old salary due to the new salary that can be obtained, $50,000. Therefore:

   (new wage – old wage)

   ($50,000 - $40,000) = $10,000

3. Step 3. Divide the salary increase by the old salary

   Divide the result obtained in finding the difference between the two values by the old salary.

   In this example, the difference between the old and new salary is $10,000. Divide this value with the old salary:

   (new salary – old salary) / old salary

   $10,000 / $40,000 = 0.25

4. Step 4. Convert the increase ratio to a percentage

   To express the result as a percentage, multiply it by 100.

   In this example, the resulting increase ratio is 0.25; thus, we convert this value as a percentage to find the salary increase percentage:

   Salary increases ratio x 100 = Percentage salary increases

   0.25 x 100 = 25%

   Therefore, the salary hike percentage is 25% more than the old salary.

Calculating percentage salary increases helps employees track growth, negotiate better pay, and plan their careers. Employers use it to offer competitive raises that align with industry standards and business goals. Regular salary reviews and clear communication improve job satisfaction, retention, and productivity.