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