When it’s time for annual performance reviews, if you plan on including pay raises, you need to know the simple math behind calculating pay increases correctly. Raises can be based on any number of things including a worker’s piers, standard industry rates, length of time on the job, the amount of work to do, and even whether or not the boss likes the employee or not. There are few, if any, laws that govern how and when increases are granted, so it’s up to you to determine what you’re willing to give.
Timesheets.com has a free pay raise calculator that can help.
Calculating the Percentage
Generally, you will want to increase their pay by some percentage. The national average pay increase generally hovers between 3% to 3.5% depending on the year. The trend is to reward top performers with a higher than average pay raise and average workers with lower pay raises.
I have written about percentage before – in the post about calculating sales tax – now we’ll relate percentage to pay increases.
When your employee is ready for a pay increase, decide what percentage is fair and then do the following calculation:
(current rate)(percent increase)=(increase)
Step 1: Convert the percentage into decimal form
This is pretty basic, but you need to convert the percentage into a real number that you can use to multiply by the employee’s current pay rate. To do this, simply move the decimal two places to the left. For a 3% increase, you will use .03.
Step 2: Multiply the employee’s current pay rate by that decimal
If your employee makes $15/hour, then you have: 15x.03=.45. So your employee’s increase is 45 cents per hour. For an employee who makes a salary of $45,000/year, then you have: 45,000x.03=1,350. So your salaried employee’s pay increase is $1,350 per year.
Why You Have to Convert the Percent
This is just a little theory and not needed to do the problem.
The percent symbol is used to tell you something about the number it sits beside. Percent means ‘parts per hundred’. So if a % sign sits beside a 3, it really means 3 parts per 100. You don’t need to know this to calculate a pay increase but it might help you to understand why you need to convert the percent into decimal form to begin with. 3% tells us we need to multiply our pay rate by 3 pieces of a hundred.
Do you remember what the decimal places mean? The first decimal place is the tenths place and the second is the hundredths place. This is why when we convert our percent we have to move two places – we have to open up the hundredths place.
Automatic Pay Raise Calculations
The Human Resources Documents within the Timesheets.com time tracking service calculates pay raise percentage as well as keeps record of changes. Record keeping is required by the FLSA for all sorts of things related to payroll.