An employee is a vital cog in the wheel of business, and their commitment and dedication is crucial for the success of the venture. Employee retention is, therefore, crucial, and to this end, the employer has to pay their employees fairly to gain their loyalty and commitment. One important activity that keeps the employees satisfied and committed is regular salary hikes announced by the company.
What is a Salary Hike?
A salary hike is an upward adjustment of the employee’s salary package and this is usually given by the employer based on factors like employee performance, experience, inflation, or fluctuation in the job market. For an employee, a salary hike is an important achievement in his or her career and recognition of the contribution to the company’s growth.
A pay hike provides them with the opportunity for professional growth and increased financial stability. The cost of living increases consistently every year due to inflation and a salary hike is one way of ensuring that employees can maintain their purchasing power and way of life through rising prices.
How to calculate Salary Hike Percentage?
The Salary Hike Percentage Formula is a simple and straightforward arithmetic calculation to arrive at the Salary Hike percentage. The following simple steps will guide you through this process.
Step 1 Determine the salary you are currently offering.
The current salary is the salary that you pay before the hike.
Step 2 Note down the new salary after the hike.
This is the salary that you will pay after the announced salary hike.
Step 3 The Current Salary has to be subtracted from the New Salary
When you subtract the Old Salary from the New salary you get the increase in Salary amount after the hike.
Step 4 Calculate the Salary hike percentage
Divide the figure obtained in Step 3 by the current salary and then multiply the result by 100 to get the hike percentage.
The salary hike formula is relatively simple and follows basic arithmetic operations. The formula is:
Salary Hike Percentage = New Salary – Current Salary/Current Salary x 100
The New Salary is the amount that the employee receives after the hike.
The Current Salary is the amount that the employee is currently receiving.
This Annual salary hike formula enables employers to quantify the percentage increase in salary and gain insight into the impact of the hike on the overall compensation. This will help them to evaluate job offers, negotiate salary adjustments or assess the effectiveness of performance reviews.
Example of Salary Hike Percentage Calculation
Let’s now look at an example:
Suppose the employee’s current salary is Rs:65,000, and is offered a New salary of Rs:71,500 after a performance review.
The formula is:
Salary Hike Percentage = Announced New Salary amount– Current Salary/Current Salary x 100
= 71500 – 65000/65000 x 100
= 6500/65000 x 100 = 10
The Salary Hike is 10 %
Let us now calculate Salary Hike Percentage from the CTC (Cost to Company).
CTC include heads like Basic Salary, DA, benefits, bonuses, and other perks. If the employer hikes the salary based on CTC, the same formula can be used to arrive at a hike percentage.
Example : Old CTC = 7,80,000
New CTC = 8,58,000
Hike amount = New CTC – Old CTC = 8,58,000 – 7,80,000 = 78,000
As per Formula: 78000/780000 x 100 = 10 %
How to calculate Salary Hike on Hourly Wages?
If the employees are being paid on an hourly basis, you can calculate the percentage of wage hikes using the same formula.
Old hourly wage = Rs: 200
New hourly wage = Rs:230
Wage Hike Percentage = New hourly wage – Old hourly wage/Old hourly wage x 100
230 – 200/200 x 100 = 15%
However, this will be useful for organizations that employ freelancers, contract workers, and other employees with hourly wages.
You can also calculate salary increments and their percentages using a salary hike calculator that comes bundled with certain payroll packages.
Why do employers hike salaries?
- To motivate
A salary hike helps to foster a positive workplace culture and ensures job satisfaction. It motivates employees to continue to work and contribute positively to company growth. These increments are one of the ways of informing the employees that the company appreciates their contribution to the company. Companies that offer reasonable salary hikes and other financial incentives have lower attrition rates and can retain their employees for a longer period.
- To recognize and reward the performers
Consistent performers are recognized and rewarded for their contribution to company growth. A salary hike is one form of this reward that acknowledges their hard work, dedication, and valuable contribution, and encourages them to maintain high level of performance.
- Supports the rising cost of living due to inflation
Inflation pushes up the cost of living periodically. To offset this, companies offer salary hikes to employees to enable them to maintain their purchasing power and enhance their way of life.
- Encourages career growth
A salary hike indicates that the employee is moving up the career ladder and is performing better. This, therefore, encourages career growth.
- Assists in Financial Planning
With a higher salary, it becomes easier for the employee to plan for the future and save money. This will encourage him to be more loyal to the organization.
What factors help employers to decide on a salary hike?
This is a question that is on the minds of employers or HRs all across the industry. The decisions that the employers or HRs take is vital to how they interact with the employees and get their work done. The following factors are taken into consideration to decide on salary hikes:
- Budget of the Company
The budget of the company plays a major role in deciding on salary hikes. If the company has a funds crunch, it can opt to pay increments to a limited number of employees. This means only those who have performed well will receive a salary hike.
- The Experience Level of the Employees
Experience is a vital factor in deciding on paying a salary hike. The priority of most employers is to give raise to experienced employees, especially those who take effort to guide their colleagues or help recruits with training.
- Qualification and Expertise
The qualification and expertise of an employee plays a crucial role in receiving a salary hike. An employee with the required qualifications and expertise for the job is the ideal choice for a salary hike.
- Maintaining Average Pay Standards
Employers may research the average salary standard in similar roles in the industry to consider given yearly salary hikes. Most companies try to match current trends by paying their employees well.
- Employee Performance
This is one of the most important criteria for salary increments. Most organizations value their high performers and recognize their efforts through rewards in the form of salary hikes or incentives. Performance tracking solutions are used to track employee performance throughout the employment career.
Conclusion
Salary hikes are not just a numerical increase in the take-home salary of an employee; they symbolize an organization’s acknowledgment of an employee’s contribution and are, therefore, a strategic tool for boosting morale and productivity. While the decision-making process is influenced by various factors, performance remains a vital factor in any salary hike.
Employees can greatly appreciate the salary hikes by understanding the factors that have influenced the employer in giving such hikes. This will help them to plan their future course of action accordingly. A pay hike is just a stepping stone towards career growth and financial stability. Employees should balance immediate gratification with long-term career goals.
GetifyHR, a tried and trusted Payroll Processing and HR Management service provider, can streamline your entire payroll process and empower your workforce. Where you require a more streamlined approach to managing your salary details, you can consider using GetifyHR’s comprehensive HRMS solutions.
Leave A Comment