How to calculate salary increases
Determining your salary increase as a per cent of your base salary is a critical part of financial planning. Calculating your per cent raise allows you to benchmark your compensation to inflation and to the raises that people in similar jobs receive.
Though easy to do, many workers do not calculate their raises as a per cent of their old salary and are often content to simply accept the raise they are offered. This type of mentality is dangerous, and it may allow employers to pay workers less than they could receive at other firms.
Subtract your old salary from your new salary to calculate your salary increase in dollars. For example, if you are currently making £39,000 and your new salary will be £42,250, the dollar amount of the increase is £42,250 - £39,000 = £3,250.
Divide the dollar amount of the increase by your old salary to determine the per cent increase. In the example above, the per cent salary increase is £3,250/$60,000 = 8.3%.
Compare your salary increase to inflation (as measured by the Consumer Price Index) and raises received by people in similar jobs. You may be content with a £3,250 salary increase, but if inflation for the current year is 9%, you will actually be worse off in terms of your real purchasing power, even after the raise. Additionally, you may learn that a friend of yours in a similar job at a different firm will be paid £48,750 this year vs. your £42,250. You may feel as though you deserve more, but if you learn that your friend's old salary was £46,800, it means that he received a salary increase of £1,950/$72,000 = 4.2% vs. your 8.3% increase. You may be doing a better job than him, which may result in a promotion.
Find inflation data at the U.S. Bureau of Labor Statistics website (see Resources). If you are paid by the hour, subtract your old hourly rate from your new hourly rate and multiply the result by the hours worked each year to compute your pay increase in dollars. For example, suppose you make $10 per hour working 40 hours per week for 48 weeks per year. Further suppose that your wage will increase to £7 per hour and that you expect to work the same number of hours. The dollar amount of your pay increase equals ($12 - £6) x 40 x 50 = £2,600. Your pay increase as a per cent of your old wage equals £2,600/($10 x 40 x 50) = 20%.
There are several online calculators that will calculate your salary increase for you if you enter the correct data. However, ensure that these calculators are accurate by computing the salary increase yourself by following the steps outlined above.