Salary Increase

How to Find out the Percentage of a Salary Increase

 

A raise can take many forms. Maybe you rose or got a promotion, or maybe you got a whole new, better-paying job. Regardless of the circumstances, you may want to know how to calculate your raise as a specific percentage of your old salary. Since inflation rates and cost-of-living statistics are often expressed as percentages as well, calculating the increase as a percentage can help you compare the increase to other things like inflation. The calculation also helps you to compare your remuneration with others in your field.

Calculate your salary increase percentage

Subtract your old salary from your new one.

For example, let’s say you made $45,000 a year at your old job and now you have a new job that makes you $50,000 a year. This means that you would subtract €45,000 from €50,000: €50,000 – €45,000 = €5,000. If you are paid an hourly wage and do not know your annual wage, you can simply use the old and new hourly rate instead of the salary. For example, if the increase was from $14/hour to $16/hour, you would calculate like this: $16 – $14 = $2.

Divide the difference by your old salary.

To convert the increase amount to a percentage, you must first calculate it as a decimal. To get the decimal amount you want, take the difference calculated in step 1 and divide it by your old salary. Based on the example from Step 1, this would be: $50,000 / $45,000 = 0.111. If you are calculating the increase in hourly wage, this would work the same way. From the example above: €2/ €14 = 0.143.

Multiply the decimal by 100.

To convert a number in decimal format to a percentage, simply multiply it by 100. Using the example above, you would multiply 0.111 by 100. 0.111 x 100 = 11.1%. This means that the new salary of €50,000 is approximately 111.1% of the previous salary of €45,000. So you got an 11.1% raise. In the hourly wage example, you would also multiply the decimal by 100: 0.143 x 100 = 14.3%.

Include other benefits, if any.

If you’re comparing a new job at a new company rather than just a raise or promotion at your current company, then salary might just be part of the overall package to consider. You have a variety of other things that you may want to consider. These include: Insurance Benefits/Premiums: If both agencies offer employer-based insurance coverage, you will need to compare the coverage of the two policies. You also need to consider the premium that will be deducted from your paycheck. If you now pay an insurance premium of €200 per month instead of €100, this would, for example, make part of your salary increase void. Also consider the amount of insurance (are teeth and eyes included?), the deductible you have to pay, etc. Bonuses or commissions: Even if they are not part of your normal salary, don’t forget to include bonuses and/or commissions in the calculation . The new salary might bring in more monthly, but if your current job offers the possibility of quarterly bonuses, for example, is the increase still worthwhile? Retirement Plans: Most companies in the US offer retirement plans that allow you to set aside taxed wages for your retirement. Many companies contribute up to a certain percentage of an employee’s participation. If your current company doesn’t co-pay and your new company co-pays up to 6%, then that’s essentially free extra money for your retirement to consider. Pensions: Jobs that offer a pension for a certain number of years of continuous work also need to be considered. If your current position offers a great retirement after 25 years, but the new position doesn’t offer any retirement, then you should consider that as well. A higher annual salary might be more money right away, but it’s also worth considering the lifetime potential of the two.

Determine how the increase compares to inflation

Understand inflation.

Inflation is an increase in the prices of goods and services, so it affects your cost of living. For example, high inflation often means an increase in the cost of food, electricity and gas. People tend to buy less during periods of high inflation because those periods mean higher prices.

Look up inflation.

A number of factors determine the inflation of a currency. In the US, the Department of Labor, with the Bureau of Labor Statistics, publishes a monthly report that tracks and calculates inflation. You can find a monthly overview of US inflation rates for the past 15 years here.

Subtract the inflation rate from your pay rise percentage.

To determine the effect inflation has on your higher salary, simply subtract the rate of inflation from the percentage of your salary increase that you calculated in Part 1. For example, the average inflation rate in 2014 was 1.6%. Using the 11.1% pay rise calculated in Part 1, you would calculate the effect of inflation on the raise like this: 11.1% – 1.6% = 9.5%. This means the increase is only worth an extra 9.5% because the money is worth 1.6% less than last year when you factor in the increased prices of common goods and services. In other words, it took you an average of 1.6% more money to buy the same things in 2014 than it did in 2013.

Link the impact of inflation to purchasing power.

Purchasing power refers to the comparative cost of goods and services over time. For example, let’s say you have the $50,000 salary from Part 1. Now let’s say inflation is 0% the year of the increase, but rises to 1.6% the following year without you getting another increase get. This means you need 1.6% more to buy the same basic goods and services. 1.6% of $50,000 equals 0.016 x 50,000 = $800. Your purchasing power based on inflation has decreased by €800 compared to last year. The Bureau of Labor Statistics has an easy-to-use calculator for comparing purchasing power between years. You can find it at: http://www.bls.gov/data/inflation_calculator.htm

Tips

There are several calculators online that you can use to quickly calculate a percentage increase in salary. The examples above work just as well in other currencies.

 

About the Author

Daniel Carter

Daniel Carter is a senior writer and editor at CouponKirin. His work has been featured by The Associated Press, USA Today, the Chicago Tribune, and Reuters. He holds a bachelor's degree in journalism from University of North Carolina at Chapel Hill. When he’s not writing about money, Carter enjoys traveling around the world.