Let’s agree that we all work to earn the bread-butter at the end of the day. Employees, contractors, or any working entity eagerly waits for that one day – ‘appraisal’. Increments bring thrills and chills and are
silent motivators in encouraging employees to deliver their best.
Sadly, very few employees in the USA are happy with their current pay scale and more are willing to join a better workplace for a pay hike. [Source: Indeed]
Companies, on the other hand, are always focused on maximizing profits. Many firms somehow miss out on keeping employees happy with deserving pay raise. Thus, they may start losing their best players. It is important to consider appropriate criteria and more contributing factors to do justice to the employees.
Here is a brief guide on how to calculate percentage increase in salary & more essentials for firms to go with a no-loss basis.
The Pay Rise Criteria
Every company has its own set of criteria that determines the qualification of an employee for the increment. It serves as a standard basis that is equal for all. Employees have been filtered accordingly so
that pay hike is justified without bias.
The following are the basic criteria categories chosen by most firms. Each factor may be thought about individually or a group of factors decides when & how to give the hike.
1. Basic Living Costs
The salary criteria are never constant because the living expense keeps changing. This thought is fueled by inflation and when basic living expenses rise, companies must reconsider the wages offered to the
employees.
Any employee will seek a salary that benefits their living costs. Thus, the basic cost of living influences the basic pay, regardless of how your employee might perform.
How to determine this cost? Stay informed with the Social Security Administration COLA (Cost Of Living Adjustment).
The COLA is nothing but an increase in Social Security benefits that helps in adapting to the economy. 2021 marks for 13% COLA. Thus, offering at least a 13% hike will strike a balance to meet this annual cost.
2. Promotions
Opposite to basic living cost-based hike, merit-based pay rise criteria are not that widespread. It is not offered to each and every employee of the firm, but to those who’ve performed well & thrived in their
career responsibilities. For instance, your team leader has an excellent growth chart & is about to be promoted as a manager.
You have to look up to how these employees are contributing to the company’s goals & the way they’re becoming a value-addition for the firm. Consider their extra efforts over basic job responsibilities that
are taking the company to new heights.
No particular criteria influence your decision here. You have to decide based on their job role & performance. However, if you don’t stand up to their expectations with a pay hike, you may lose your star player too!
3. Serving Duration
Many firms stick to this ‘minimum serving duration’ rule. For instance, the employee status improves if they’ve served for a few years. You may consider this one if you have great performing employees who’re working dedicatedly for years in a row.
4. Job Retention
This criterion is considered in times when a firm wants to prevent employee turnover. As mentioned above, employees keep looking for better opportunities if they’re not satisfied with their current pay.
Thus, firms can offer attractive benefits, bonuses, and pay raises at frequent intervals to maximize job retention.
One major con of this factor is that it may decrease employee morale because they may misunderstand that the firm needs them.
Related Article: Why Was No Federal Income Tax Withheld From My Paycheck?
How much should be the expected pay rise?
With every firm deciding their factors respectively, the pay rise differs accordingly. A survey by Investopedia determines the following average pay rise:
➡ Average performers are paid a 2.7% hike
➡ Overall average performers get 3.1% pay raise
➡ High performers receive a 4.6% increment
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Frequency of Pay Rise
Just like firms choose desired criteria for a pay rise, the same goes for how frequently the employee is rewarded with a hike in salary. Commonly, businesses go with annual or semiannual pay hike schedules.
Some firms may want their employees to earn their rewards & give them a hike when they deserve it. Another criterion is rewarding your employees when your firm earns massive profits.
In a nutshell, it depends on how you want to let them enjoy the perks.
How to calculate a percentage increase in salary?
Drilling down on how to calculate percentage increase in salary, we have two popular methods:
1. Flat scale
Entrepreneurs may use a paystub generator to figure out the additional amounts to be added to the employee’s paycheck. The annual salary is divided either by 52 weeks, 26 weeks, 24 or 12 weeks based on the firm’s capacity.
2. Percentage-based
Two important things are taken into account while giving a pay hike via percentage calculations. Firstly, you have to fix the percentage of pay rise you’re willing to give. Next, the maximum salary you want your employee to have.
New Salary (After Hike) = (Old Pay * % of raise) + Old Pay
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