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Salary increases come in various ways. You might have received a raise, been promoted, or taken a new job with a better pay. No matter the situation, you probably want to figure out how to express your pay raise as a percentage of your previous salary. Since inflation rates and the cost of living are often represented as percentages, calculating your raise this way allows you to compare it with factors like inflation. Understanding how to calculate a salary increase percentage also enables you to assess how your compensation measures up to others in your industry.
Steps
How to Calculate Your Salary Increase Percentage
Subtract your previous salary from your new salary. For example, if your old salary was $45,000 annually and you accepted a new job paying $50,000 per year, you would subtract $45,000 from $50,000, resulting in $5,000.
- If you are paid hourly and don’t know your yearly salary, you can calculate the difference using your hourly wage. For instance, if your raise was from $14/hour to $16/hour, the calculation would be $16 - $14 = $2.
Divide the increase amount by your previous salary. To convert the salary difference into a percentage, you first need to express it as a decimal. Take the difference from Step 1 and divide it by your old salary.
- For example, using the numbers from Step 1, divide $5,000 by $45,000, which gives you 0.111.
- If you're calculating an hourly rate increase, the process is the same. Using the previous example, divide $2 by $14 to get 0.143.
Multiply the decimal by 100. To convert a decimal to a percentage, simply multiply it by 100. In the previous example, 0.111 multiplied by 100 gives you 11.1%. This means your new salary of $50,000 is roughly 11.1% more than your previous $45,000 salary.
- For the hourly wage example, you’d multiply 0.143 by 100 to get 14.3%.
- To verify the calculation, multiply your original salary by the increase percentage. For instance, $45,000 multiplied by 1.111 equals $49,995, which rounds to $50,000. Similarly, $14 multiplied by 1.143 equals $16.002.
Consider other benefits if relevant. If you're evaluating a new job offer instead of a salary increase at your current company, remember that the salary is only one aspect of the overall compensation package. You'll want to factor in other benefits, such as:
- Insurance coverage/premiums – If both companies offer insurance, compare the details of the plans, including premiums. For example, a job that raises your salary but increases your insurance premium might negate some of the raise.
- Bonuses and commissions – These are often not part of the base salary but can impact your overall earnings. Make sure to account for the possibility of bonuses or commissions in both your current and future roles.
- Retirement benefits – Many companies offer 401(k) plans, and some match your contributions. If your current company doesn’t match but your new employer offers a 6% match, this is essentially free money toward your retirement.
- Pensions – If your current job offers a pension after a certain number of years, it’s an important consideration. A higher salary may offer immediate benefits, but the long-term potential of a pension should not be overlooked, though pensions are less common today.
Understanding How Your Raise Compares to Inflation
Understand the impact of inflation. Inflation refers to the increase in the cost of goods and services, which affects your overall cost of living. High inflation, for example, often results in rising costs for food, utilities, and gas. During inflationary periods, people may buy less due to the higher prices for everyday goods and services.
Research inflation. A variety of factors influence the rate of inflation. In the U.S., the Bureau of Labor Statistics, part of the Department of Labor, releases monthly reports on inflation data. You can access a detailed breakdown of U.S. inflation rates over the past fifteen years here.
Deduct the inflation rate from your percentage increase. To understand how inflation affects your salary raise, subtract the inflation rate from the percentage increase you calculated earlier. For instance, the U.S. inflation rate in 2014 was 1.6%. If your raise was 11.1%, you would subtract 1.6% from 11.1%, resulting in a net increase of 9.5%. This means that after considering the 1.6% rise in prices, your real increase is only worth 9.5%.
- In other words, it required 1.6% more money in 2014 to purchase the same goods as in 2013.
Understand the impact of inflation on purchasing power. Purchasing power measures how much your salary can buy over time. For example, if you earn $50,000 per year and inflation stays at 0% the year of your raise but rises by 1.6% the next year without another salary increase, your purchasing power will be reduced by that 1.6%. That’s 1.6% of $50,000, which equals $800. Your ability to buy the same goods and services will effectively be $800 less compared to the previous year.
- The Bureau of Labor Statistics offers an easy-to-use inflation calculator for comparing purchasing power between years, available at: https://www.bls.gov/data/inflation_calculator.htm
The Conclusion: Calculating a Salary Increase Percentage
To calculate your salary increase percentage, subtract your previous salary from your new salary. Then, divide the difference by your old salary to get a decimal. Finally, multiply that decimal by 100 to get the percentage increase in your salary.
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You can find various online tools that allow you to easily calculate salary increases as percentages.
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The calculations provided above can also be applied when working with different currencies.
What You Will Need
- Calculator
