How To Calculate A Raise For Your Employees

How To Calculate A Raise For Your Employees

Potential employees are an asset to the organisation and keeping them happy through pay raises is actually worth the investment. Retaining the right talent instead of recruiting newbies, saves you a lot of time, effort and money. So, why carry this pain on your neck? Giving the employees the right share of your profit can actually let your company grow manifold, as it is said that your company is as good as your best employees. Therefore, regular pay raises to the deserving employees can help bring that energy into your employees, such that they keep thriving to deliver the best to the organisation they are working for.

Perks of a pay raise

Absence of a pay raise to the zealous employees can be demotivating. A pay raise also turns up to be a major factor for your employees to decide whether to stay or quit your company for better options around. On the contrary, employers offering competitive pay

raises score high on a scale of factors such as employee loyalty, employee satisfaction, employee happiness and employee dedication. Although pay raise have a lot of tangible and intangible benefits that are brought to you when offered regularly, but bringing forth a few of such perks below –

  • High quality of work.
  • Increasing efficiency and productivity.
  • Dedicated workforce.
  • Low employee turnover.
  • Energetic work environment.
  • Responsible and loyal employees.
  • Strong brand image.

Types of salary hikes

So, before you offer a pay lift, you need to ascertain the different types of hike that you intend to provide  to  your employees. Either its annually, quarterly, performance based, term based or individualised, all you need to do is create a benchmark for the same. This will help you have clarity in the increment criteria, such that it could be  easily  implemented in your payroll process without a disparity. This also helps establish a transparent pay procedure which keeps  you from getting into any altercations with your staff in future.

Cost of Living Pay raise

Before we get deeper into the types of increment, it’s important for you to know about the Cost of Living raise which is not a perf based pay, but a mandatory raise in salary due to inflation and ultimately increase in the cost of living. These kinds of enhancements are added to the social security benefits according to the standard inflation numbers put up by the national or regional data. The COLA is often based out of the Consumer Price Index and is often seen to be added annually in case of inflation. Which means no inflation, no salary increment, but percentage rise in inflation equals a percentage rise in the salary bump. According to reports, the inflation rate of India in 2020 has reached a high of 3.34% compared to the previous year.

Merit Based Pay Raise

Talking about the real salary increments, merit based pay hikes are one of a kind, which has been recognised and practised widely. The entire notion behind the setting up such a pay is to reward the deserving employees for their unwavering efforts towards the company. This is like freeing two birds with one key, technically, merit based pays also help in driving the other under performing employees to outperform their jobs through reward based motivation. This helps inculcate a competitive and success driven workplace.

The incentives can be anything from monetary to intangible benefits, which are exemplary in nature and help attract top talents towards you, viz. great shopping discount coupons, free travel passes, free gym membership and many more. The only thing you need to prioritise when planning for a merit based pay is the clarity of standards established. The performance should be well measured and evaluated and appropriately incentivised.

Tenure Based Pay Raise

Next is the Length of Service reward which is simply a remuneration achieved on reaching a pre-established milestone, say on completion of 5 years of service to the company, the employee is rewarded with a certain pay hike. Employees crave for recognition and even a pat on their back might boost them up to outdo their responsibilities. Hence, recognising an employee for their dedication towards the company for a considerable time, keeps inspiring them to perform consistently well and aids in promoting loyalty, employee engagement, employee retention while increasing the overall performance of the organisation.

Thus, doling out incentives might not always guarantee low employee turnover, but proper tactics can you get you ahead of your competition by far. You must always plan out such reward based pays as far as you can afford it. It need not always have to be at par the industry standards. Timely reviews and meetings should be conducted and relevant incentives worth the expenses needs to be figured out, so as to keep that spark in your employees alive.

The amount of raise you should pay

As per Deloitte survey, companies in India have decided to give out an average hike of 3.6% in 2020-21 compared to the average hike of 8.6% in the previous year. The Survey has also reported that out of the 350 organisations surveyed, only 4 out of 10 have

actually given a pay lift in 2020, and a shocking 33% have not even considered any incentive pay outs this year. The remaining half still stand indecisive regarding the matter, thus recording the lowest of salary hikes in the decade.

Calculating the lift in employee salary

A simple calculation to work out the new salary of an employee after adding up the designated increment to the existing salary is as follows :

  • First, multiply the existing salary amount with the percentage of increment provided.
  • Then, divide the output with 100.
  • Finally, add the value to the existing salary amount.

Let’s consider, the existing salary of X is Rs. 20,000 and he/she has been rewarded with a pay raise of 8%. therefore , the new salary he/she is worthy of is –

New Salary = (20000*8)/100 + 20000 = Rs. 21,600.


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