All you need to know about a pay rise?

All you need to know about a pay rise?

Introduction

The pay rise is a fuel to keep the employees driving towards a better performance consistently. Anyone who has been serving unswervingly for a company for years is liable for a reward in return, which will keep triggering that spark within the employee to continue with the utmost vigour selflessly.

There exists a number of reasons as to why a pay rise is essential for the company’s good health, discussing them further down below:

  • A pay rise can actually help in retaining the top talent of yours. Competitors keep hunting for skilled employees and might easily lure your valuable employees to work for them. Losing a competent employee can cost an arm and a leg, which is why offering the standard salary rates and a pay rise for employees adding value to your company can help counter attrition and will help them stay loyal to your work for longer.
  • Employees who are not recognised for their hard work often get frustrated and hence the performance level starts degrading to an extreme. Therefore, a justified pay rise can help boost their morale and keep them motivated to go the extra mile.
  • Compensating the happy souls of your organization can actually help you create a positive atmosphere all around and therefore make your organization stand out amongst the crowd.

Therefore, this is how payroll plays a crucial role in the smooth functioning of a business.

When to make a pay rise and How to make one?

A pay rise is important and so is the knowhow of when and how to implement it. There might be a ton of reasons for a company undertaking a pay rise for its staff. The reasons might be :

  • The increasing cost of living, which happens widely to allow employees to keep up with the increasing pace of living expenses. It is a hike which is practised for all the employees of an organisation irrespective of the performances delivered by the employees.
  • Based on the matrices such as the excellent performances delivered, the company goals  fulfilled,  the  amount  of  value-added  to  the  business  and  the  one’s  who surpassed the standard benchmark and went the extra mile to get the job done efficiently.

In this case, the calculations must be done with precision and the pays might differ based  on  the  quality  of  contributions  made.  The ones who couldn’t make it might take it as a challenge and set their own targets in order to be honoured with the same or even better.

  • The tenure of service of the employees is also a reason for a hike in pay. The employees who had been loyal to the company for a long time should be rewarded on completion of long term with the company, say a good number of 10 or 15 years or so for their tireless loyalty towards the company. This is a good way to pay tribute to the priceless commitment of the employees which makes them feel valued and motivated to keep working for you.

How much should the rise be?

According to a survey by Deloitte, it has been reported that companies operating in India are likely to offer a hike of 7.8% to their employees on an average for the financial year of 2020-21. The lower salary hike as compared to the previous year’s hike of 8.2% is due to the higher-margin pressure due to the great economic turmoil this year.

The survey showed that almost 50% of the companies surveyed are projecting a salary increment of less than 8% and only 10% of the companies are expecting to offer a rise greater than 10%. The participants of the survey were 300 companies across 7 different sectors and 20 different sub-sectors.

The rise should be calculated on the basis of the amount of value added by the employee. Now how do you count the value addition? Human capital metrics are very helpful in finding out the exact answers to your doubts regarding the worth of an employee and if you are paying them appropriately. The human capital metrics are :

  1. Human Capital ROI: It is the ratio between the amount of money your business earns to the employment cost. The employment cost might include salaries, health insurance premiums, retirement plan contributions, educational assistance, etc.

Human Capital ROI = (Revenue – operating expenses – employee compensation)/ Employee Compensation

2. Training Investment Value: It is the amount of money that you spent on the training of an employee.

Training Investment Value= Total training investment/Headcount

3. Turnover rates: This indicates how much of your employees have left you during a specific period of time.

Turnover rates= (No. of employees left/Average no. of employees)*100%

The amount of raise also depends on the business condition. If you are making high profit then you will accordingly allocate higher hike, on the contrary, if you are on a loss, then holding off the hike for a certain period of time will be logical.

When to offer a salary hike?

Salary hikes vary from company to company. Some might keep it quarterly, some might keep it semi-annually and others might like it annually. It might also depend on the length of service of an employee. The frequency of hike offered must be channelised with the profits earned by the business.

How to calculate a pay rise?

The new salary can be calculated by the following formula:

New Salary = (Old Salary X Raise %) + Old Salary

The percentage increase in the old salary can be calculated by:

Percentage Increase = [(New Salary – Old Salary)/ Old Salary]*100%


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