Average Raise Percentage in 2024: An Employer’s Guide

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Average Raise Percentage in 2024: An Employer’s Guide

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A slight decrease is forecasted for the 2024 average raise percentage. Learn how to navigate this figure as an employer to maximize positive results.

According to a new survey, 66% of US employers plan their 2025 salary increase budgets to be the same as the previous year. 19% believed it would be higher, while the remaining 15% thought it would be lower.

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As an employer, it’s important for you to know how to make a decision that protects both the interests of the company and your employees. After all, retaining top talents in spite of the tight labor market while ensuring company growth and success is indeed a challenging responsibility.

In this guide, we’ll discuss everything you need to know about the average raise percentage in 2024. Is a pay raise important? What are the reasons why you need to give one? How do you calculate the 2024 average raise percentage? Let’s find out!

Is a pay raise important?

Yes, giving your employees a pay raise or pay increase can yield several positive results that can directly impact the quality of their job performance, work ethic, and motivation. Employers often offer a pay raise when employees reach a certain milestone or when they specifically negotiate for a salary increase.

There are also instances when companies offer an average annual raise to employees to help fight inflation and overcome financial challenges to battle the ever-increasing costs of living. Giving a pay raise has been a proven-and-tested tool by organizations to reduce employee turnover.

However, it’s also important to note that giving a pay raise isn’t the only way to convince your top talents to stay with the company. Offering other forms of compensation such as bonuses, equity, and other benefits is also effective in staying ahead of the job market competition.

Formulate a winning compensation package to attract and retain top talents using the Compensation Planning Software. With this, you can easily handle even the most complex incentive programs by simplifying employee benefits and giving them the best compensation options in the market.

Reasons why you need to give pay raises

Giving your employees a pay raise is a key factor in significantly boosting morale, motivation, and hard work. These are all organizational growth facets that eventually translate to overall success.

However, as an employer, you shouldn’t just give a pay raise out of nowhere. You have to make sure that it’s a smart decision that mutually benefits the company and its workforce. Below are some reasons why you need to give pay bumps:

Exemplary job performance: Employees who produce high-quality outputs, exceed expectations, and go above and beyond their responsibility definitely deserve a pay raise. It’s the organization’s way of showing their appreciation for an employee’s hard work.
Overall company success: Companies who reach or even surpass their annual revenue goals often share their success with employees through pay raises or incentives also known as profit sharing. This success could be defined by boosted sales, investments, or project acquisitions.
Competitive job market: Giving a pay raise encourages loyalty from your organization’s best employees. Especially nowadays where top talents with in-demand market skills often leave their old jobs for better opportunities.

What is the average raise percentage 2024?

According to studies, top companies forecasted the average pay increase in 2024 to be at 3.6%. This figure is slightly lower compared to the average annual raise from the previous year, which was at 4%.

Millions of US employees count on the 2024 average raise percentage to overtake inflation which was determined to be around 3% for the year. On the other hand, Americans also consider the cost-of-living adjustment (COLA) which is at 3.2% to cope with rising costs.

This highlights the importance of having reliable and effective salary planning strategies for your organization. Utilizing the Compensation Planning Software will help you create competitive compensation packages that combat economic uncertainty and rising costs of living.

How to calculate the average annual raise percentage

Learning how to calculate the average pay raise in 2024 helps employers see a clearer picture of the employees' total salary increases. It allows them to check the feasibility of giving annual pay increases, especially in terms of the organization’s budget allocation.

Below are the two types of average annual raises:

Flat rate increase: This refers to a fixed amount of salary given by an employer to an employee (e.g. $2500/year, $300/month)
Percentage-based raise: This utilizes a certain percentage which is computed as a portion of the employee’s existing salary. (e.g. 2.5%/year, 5%/year)

Organizations prefer to use percentage-based raises because it’s easier to plan and manage the budget as opposed to using flat raise increases. Here’s a step-by-step process you can follow:

For easier calculation, convert the average annual raise percentage to a decimal number.
Then, multiply the existing annual salary by the decimal amount, giving us the annual net increase.
Add the annual net increase to the existing annual salary to calculate the updated annual salary.

Let's look at an example to gain a better understanding:

Employee A: A senior principal of a consulting firm earns $350,000 per year. How much will his updated annual salary be considering the 2024 average raise percentage of 3.6%?

Average annual raise percentage = 3.6% = 0.036

Annual net increase = 350,000 x 0.036 = $12,600

Updated annual salary = 350,000 + 12,600 = $362,600

FAQs

Below are some common questions about the average raise percentage in 2024:

Is 5% a reasonable average annual raise?

Yes. Offering a 5% pay increase is a reasonable decision considering that the 2024 average raise percentage is only 4%. It’s also well above the projected average annual raise in 2025 which is at 3.5%.

Proper salary planning is key to ensuring that your employees get paid right. Compensation Planning Software will assist you with total compensation management based on market-accurate data.

What is the minimum wage in 2024?

According to the Fair Labor Standards Act (FLSA), the federal minimum wage is $7.25 per hour. However, the minimum wage may vary from one state to another. Below are the top five states with the highest minimum wage in the US as of 2024:

District of Columbia	$17.50/hour
Washington	$16.28/hour
California	$16/hour
New York City	$16/hour
Connecticut	$15.69/hour

What is the average salary increase in 2025?

Studies show a projected decrease in the average raise percentage in 2025 due to the settling labor market. It’s forecasted to be 3.5%, a tad lower compared to 4% and 3.6% from the 2023 and 2024 average raise percentages respectively.