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This article was co-written by Jill Newman, CPA. Jill Newman is a Certified Public Accountant (CPA) in Ohio with over 20 years of accounting experience. She received her CPA from the Ohio Board of Accountants in 1994 and holds a Bachelor of Business Administration/Accounting degree.
This article has been viewed 31,141 times.
Salary increases can take many forms. Maybe you get a raise, a promotion, or accept a completely new, higher-paying job. Whatever the case, you should know how to calculate a specific percentage increase based on your old salary. Since inflation and cost of living statistics are also often expressed as a percentage, calculating a percentage increase in wages can help you compare the increase with other factors, such as inflation. Learning how to calculate percentage increases will also help you compare your salary with others in the same field.
Steps
Calculate the percentage increase in salary
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Take the new salary minus the old salary. Let’s say you made $45,000 a year at your old job and you accept a new position with an income of $50,000 a year. This means you would subtract $45,000 from $50,000. We have, $50,000 – $45,000 = $5,000.
- If you receive an hourly wage and don’t know your total annual income, simply subtract your old hourly wage from your new hourly wage. For example, if the old hourly wage was $14/hour and the new hourly wage was $16/hour, then you have $16 – $14 = $2.
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Divide the difference by the old salary. To calculate a percentage increase, you must first calculate the decimal. To calculate the decimal, divide the difference calculated in Step 1 by the old salary.
- Following the example in Step 1, divide $5,000 by $45,000. We have, $5,000 / $45,000 = 0.111.
- If you are calculating an hourly percentage increase, you use the same calculation. For example, the hourly rate increase above, we have $2 / $14 = 0.143
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Multiply a decimal by 100. To convert a decimal to a percentage, simply multiply it by 100. In the example above, you multiply 0.111 by 100. We have, 0.111 x 100 = 11.1% Meaning The new salary of $50,000 is an increase of about 111.1% compared to the old salary of $45,000, or in other words you get an 11.1% increase in salary.
- For the hourly rate example, you also multiply the decimal by 100. We have, 0.143 x 100 = 14.3%.
- To double-check the calculation, multiply the old salary or the old hourly rate by the percentage increase. For example, $45,000 x 1,111 equals $49,955, rounded to $50,000. Similarly, we have $14 x 1,143 = $16,002.
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Consider additional benefits, if any. If you’re comparing a job at a new company instead of a raise or promotion at your current company, salary is only one part of the full spectrum of benefits you need to consider. You will have to consider many other factors that will primarily determine your incremental gains. Here are a few important factors:
- Insurance benefits/premiums – If both jobs support employee coverage, you’ll need to compare plan benefits. You will also need to calculate the amount of coverage (if any) deducted from your paycheck when making your decision. Assuming your $100/month payout increases to $200/month for the same benefit amount, your pay rise will be partially deducted. You’ll also need to consider your coverage (does it cover dental or vision costs?), the total amount of your annual agreed-upon payment, and so on.
- Bonuses or commissions – Even if this is not part of the base salary, remember to include bonuses and/or commissions in the calculation. The new salary may give you a higher income, but assuming your current job offers quarterly bonuses, does the high salary still make sense? Please keep in mind that the bonus amount is not stable because it depends on your performance and/or the company’s business results.
- Retirement Plan – Most companies in the US support a Private Retirement Plan (401k Retirement Plan) that allows you to put a portion of your untaxed salary into a retirement fund. Based on employee dedication, many companies support a certain percentage into their 401k Retirement Fund. If the current company does not support that amount while the new company supports up to 6%, then you definitely have to consider the amount of money added to that super fund.
- Allowances – You also need to consider some jobs that have a stipend policy for employees when they continue to work for a certain number of years. If your current job offers attractive benefits after 25 years of work, but your new job doesn’t, then you should consider this as well. The higher annual salary gives you more money in the short term, but it’s well worth your while considering the long-term income each job offers. However, keep in mind that subsidies are not common these days. They do exist, but people don’t always pay as expected. In some cases, pension funds are mismanaged and little or nothing is left for retirees.
Determine the relationship between wage growth and inflation
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Understanding inflation. Inflation is an increase in the price level of goods and services, which in turn affects the cost of living. High inflation often means rising prices for food, public services, and gasoline. People tend to shop less during periods of high inflation because prices rise higher.
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Look up inflation. A variety of factors determine the level of currency inflation. In the United States, the U.S. Department of Labor’s Bureau of Labor Statistics issues a monthly report that tracks and calculates inflation. [1] X Source of Research You can find a monthly analysis of the inflation rate in the United States over the past 15 years here.
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Subtract the percentage of your salary increase from the inflation rate. To determine the impact of inflation on wage growth, simply subtract the percentage of wage growth from the inflation rate calculated in Part 1. For example, the 2014 average inflation rate was 1.6%. [2] X Research Source With the percentage increase in wages calculated in Part 1 of 11.1%, you can determine the impact of inflation on salary increases as follows: 11.1% – 1.6 % = 9.5%. This means that once you factor in the increase in the price of goods and services due to inflation, the increase is only 9.5% because the monetary value is 1.6% lower than the previous year value. .
- In other words, you need to spend more than 1.6% of your monetary value in 2014 to buy the same product in 2013.
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Relate the consequences of inflation to purchasing power. Purchasing power refers to the comparative prices of goods and services over time. For example, you have a salary of $50,000 a year from the example in Part 1. Let’s say the inflation rate is 0% in the year you get a raise, but the following year it increases to 1.6% in when you don’t get a raise. This means you will have to spend 1.6% more to buy the same basic goods and services. To calculate 1.6% of $50,000, we have 0.016 x 50,000 = $800. Your overall purchasing power based on inflation is down $800 from the previous year.
- The Bureau of Labor Statistics has an easy way to compare purchasing power from year to year. [3] X Trusted Source US Bureau of Labor Statistics Go to source You can visit this website: http://www.bls.gov/data/inflation_calculator.htm
Advice
- You can use several online calculators to quickly calculate your percentage increase.
- The examples above are also used exactly when you use other currencies.
Things you need
- A computer
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This article was co-written by Jill Newman, CPA. Jill Newman is a Certified Public Accountant (CPA) in Ohio with over 20 years of accounting experience. She received her CPA from the Ohio Board of Accountants in 1994 and holds a Bachelor of Business Administration/Accounting degree.
This article has been viewed 31,141 times.
Salary increases can take many forms. Maybe you get a raise, a promotion, or accept a completely new, higher-paying job. Whatever the case, you should know how to calculate a specific percentage increase based on your old salary. Since inflation and cost of living statistics are also often expressed as a percentage, calculating a percentage increase in wages can help you compare the increase with other factors, such as inflation. Learning how to calculate percentage increases will also help you compare your salary with others in the same field.
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