Summary: Calculating the employee’s new salary based on factors like the employee’s current salary and salary hike percentage. The formula here is as follows: New Salary = Current Salary X Salary Hike % + Current Salary
Who doesn’t like a salary hike? A salary increment in simple terms refers to a gradual rise in an employee’s wages or salary over a given period. The increment happens for a number of reasons including employee performance, company policies, market trends, and other such factors.
A salary hike impacts certain factors like competitiveness in the market, retention of any employee, and job satisfaction. Therefore, it is important for both employees as well as employers of any organization to know the calculation behind it.
Let’s read this article to understand what a salary hike is and how it can be calculated.
What Is Salary Hike?
As mentioned above, a salary hike or a salary increment is a slight or major increase in an employee’s present or current salary over the period. A salary hike or an appraisal happens on a quarterly, half-yearly, or annual basis. To make a decision on a salary hike, an organization typically measures an employee’s performance based on KPIs and KRAs.
Apart from that, there are several other parameters that affect the decision to appraise an employee. These include an organization’s turnover rate, market trends (demand-supply gap), the financial health of a firm, corporate regulations, and more.
When a salary hike takes place, typically it is presented as a percentage of the current salary. Employees can further use this increment to negotiate for a better raise with their new company/employer. There are different types of increments that happen.
For example, cost-of-living increments, merit-based increments, market-driven increments, promotion-based increments, etc. Therefore, it is important to determine increments fairly and accurately to stay reliant as well as competitive in the market.
How to Determine Salary Hike?
There are multiple factors associated with the decision to increase the salary of employees. One of the key determinants for making a pay rise decision is the performance at work. However, it becomes equally important to analyze other factors too.
- Your organization’s financial conditions
- The organization’s economic growth
- Market value of the job role as well as industry standards
- Department-wise budget for salary increment
- Service tenure of an employee
- Qualification of an employee including certification
- Economic conditions, including the inflation rate, cost of living, etc.
Saral PayPack helps you determine all the factors mentioned above.
How To Calculate Salary Hike Percentage?
An organization calculates their employees’ salary increments based on employees’ present salary, as well as the salary hike percentage. This can be represented as a monthly gross salary or a percentage.
You must understand the following concepts and formulae to compute the percentage for salary increments before giving them a final raise.
- Net income: Your income after all kinds of deductions for taxes, ESI, PF, and others.
- Gross income: Your total salary including all types of taxes ESI, PF, etc.
- In-hand or take-home salary: An employee’s net salary
Let’s see the salary increment calculation.
Suggested Read: Revised Salary Structure in India – Updated
The Formula for Calculating Salary Increments
Every employee in an organization must know how to calculate their salary increments. Knowing if they are being paid according to market standards becomes important.
On the other hand, employers must be aware of the calculation to offer their employees fair salary increments. Salary increments help retain good talent and stay competitive in the market.
The entire objective of this calculation is to provide a complete overview of how salary increments are determined while keeping in mind different variables.
Percentage for salary increment = (New Salary – Old Salary)/ (Old Salary) X 100
How to Calculate Salary with Hike Percentage?
This formula is for the calculation of a new salary along with a hike percentage in the current salary.
New Salary = Current Salary X Salary Hike % + Current Salary
By using Saral PayPack, you can cut half of the slack and ease down the process of salary calculation.
Examples to Calculate Salary Hike Percentage with Saral PayPack
Using Saral PayPack, you can easily compute the salary of your employees without any trouble. Let’s understand how to calculate the salary hike percentage using Saral PayPack solution with an example below:
If you are an employer and are providing one of your employees with a new salary of Rs. 80,000, while his previous salary was INR 40,000. Then his salary hike percent wise would be:
Salary Increment % = (New Salary – Old Salary)/ (Old Salary) X 100
= (80,000- 40,000)/40,000 x 100
= 40,000/40,000 x 100
= 1 x 100
= 100 %
Whenever employees in an organization perform well, fulfill their responsibilities, and take ownership of their work, the organization recognizes their efforts through salary increments. Therefore, it is important for employers as well as employees to know the calculation behind salary hikes and payroll.
To ease down the process, Saral PayPack comes in handy. Therefore, we recommend you use Saral PayPack as it helps in salary calculations automatically. It includes statutory deductions like TDS, PF, PT, and ESIC with an accurate salary range percentage.
Suggested Read: Best Payroll Calculators in India