How to calculate pay raise<\/h3>\n\n\n\n
The calculations themselves are fairly easy to learn. And there are several different ways to do them, based on your preferences.<\/p>\n\n\n\n
How to calculate raises within a pay grade<\/h4>\n\n\n\n
Every pay grade has smaller milestones (steps) an employee can reach, each of which has a pay raise.<\/p>\n\n\n\n
Usually, the calculations for these pay raise jumps are based on the salary midpoint formula. <\/b><\/p>\n\n\n\n
The salary midpoint is the middle between the minimum and the maximum rate of a pay range.<\/p>\n\n\n\n
For example, if your minimum is $34k and the maximum is $40k, the salary midpoint would be:<\/p>\n\n\n\n
Salary range minimum + Salary range maximum2= Salary range midpoint<\/p>\n\n\n\n
Or in our case:<\/p>\n\n\n\n
34,000 + 40,0002= 37,000<\/em><\/p>\n\n\n\n This is the middle value the employee will reach at some point in their career. But no pay grade has only the highest, lowest, and the middle rate. There are other rates in between those three rates – the incremental pay raises. And to calculate them, you\u2019ll need the salary differential.<\/b><\/p>\n\n\n\n Applying the same formula again will give you those incremental pay raises for each step in between.<\/p>\n\n\n\n If you are considering paying a yearly flat rate, instead of percentages, here\u2019s what you can do.<\/p>\n\n\n\n Let\u2019s say that you want to give a $2.5k raise to an employee to their annual salary. However, the calculation doesn\u2019t end there. It\u2019s in the company\u2019s and employee\u2019s best interest to see how this increase reflects on a weekly or a monthly level. Using further calculations, you get more detailed data.<\/p>\n\n\n\n You add the raise to the yearly salary.<\/p>\n\n\n\n $40,000 + $2,500 = $42,500<\/em><\/p>\n\n\n\n Divide the result by the number of weeks in a given year, which is 52.<\/p>\n\n\n\n $42,500 \/ 52 = $817,30<\/em><\/p>\n\n\n\n Subtract the old weekly wage from the new weekly wage.<\/p>\n\n\n\n $817,30 – $769,23 = $48,07<\/b><\/em><\/p>\n\n\n\n The increase in pay is $48, 07 per week.<\/p>\n\n\n\n And if you want fewer steps:<\/p>\n\n\n\n Take the desired yearly increase in pay raise, and divide it by the 52 weeks in a year.<\/p>\n\n\n\n $2,500 \/ 52 = $48,07<\/em><\/p>\n\n\n\n Aside from calculating the flat rate, you can also base your calculation on percentile increases.<\/p>\n\n\n\n Let\u2019s use an example from a previous section, and say that you have a top performer in your company to whom you want to give a 4.6% raise.<\/p>\n\n\n\n Divide your percentile raise to a 100 to get the required decimal value<\/p>\n\n\n\n 4.6% \/ 100 = 0.046<\/em><\/p>\n\n\n\n Multiply the percentage increase by the current salary.<\/p>\n\n\n\n $40,000 x 0.046 = $1,840<\/em><\/p>\n\n\n\n Add the increase to get the new salary – $41,840.<\/p>\n\n\n\n Divide the new salary with the 52 weeks in a year to see the new weekly salary.<\/p>\n\n\n\n $41,840 \/ 52 = 804,61<\/em><\/p>\n\n\n\n Subtract the old weekly salary from the new weekly salary to see what the raise weekly flat rate is.<\/p>\n\n\n\n $804,61 – $769,23 = $35,38.<\/em><\/p>\n\n\n\n This concludes that the 4.6% raise on an employee\u2019s $40,000 yearly salary is $35,38 per week.<\/p>\n\n\n\n In the case where you want to see your flat rate raise is in percentages, there is an easy formula.<\/p>\n\n\n\n New salary – Old salaryOld salary x 100 = Raise percentage<\/p>\n\n\n\n Applying this to our example above, we get:<\/p>\n\n\n\n 41,840 – 40,00040,000x 100 = 4.6<\/em><\/p>\n\n\n\n But simply calculating pay raise isn\u2019t enough. It\u2019s important to have a firm framework in place, where you know exactly when, and to whom you give pay raises.<\/p>\n\n\n\n\n Time tracking software used by millions. Clockify by CAKE.com is a time tracker and timesheet app that lets you track work hours across projects.<\/p>\n\n There is no universal, legally binding timeframe for a raise. As you will see here and later as we move on, a lot of the decisions come down to the employer (or company CEO and the CFO) – whether they want to list it as a rule in the contracts, have a merit system, include them in annual performance reviews, etc.<\/p>\n\n\n\n However, across all industries, we can single out several different types of pay raises, and the conditions they require.<\/p>\n\n\n\n Some businesses offer a steady raise, and it can come annually or bi-annually. They are given regardless of the employee\u2019s performance.<\/p>\n\n\n\n High-performing workers and those lagging behind get equal raises, and there are rarely any other requirements than working for the company for a specific amount of time. They\u2019re the easiest to implement, as they release you of any responsibility of tracking workflow. As such, they\u2019re rarely seen in the private sector – the company would more likely lose money. Additionally, these kinds of raises actually demotivate people. If everyone gets equal pay raise, then there is no need for anyone to stand out, since they won\u2019t be rewarded.<\/p>\n\n\n\n For a similar reason, the public sector (or the government) actually uses this method. Because they annually raise the cost of living arrangements such as utility bills, taxes, and produce prices, they\u2019re required to match the salaries, too. Some examples of public employees include teachers, doctors, police officers, sanitation workers (janitors, cleaners, etc). In their cases, these employees can earn much less than their counterparts in the private sector<\/a>, and so an annual or bi-annual pay raise of around 2.5% makes more sense.<\/p>\n\n\n\n It\u2019s important to note that the percentage of these pay raises depends on the COLA (cost of living arrangements) determined by the government.<\/p>\n\n\n\n Every employee has a market price<\/b>, or how much they\u2019re worth in the job market in their industry, and an internal value<\/b>, or how much they contribute to the company. Let\u2019s see how this reflects on an employer\u2019s pay raise practices.<\/p>\n\n\n\n Pay grade represents the range between the starting salary one is paid for their job position, and the highest salary they can receive in that position. So, a person can start a job for $36k and earn up to $40k within a few years. To get a salary over that, they would need to move up in the hierarchy. Every pay grade has a set of steps or milestones that needs to be crossed, in order to gradually increase an employee\u2019s salary to the maximum for their pay grade.<\/p>\n\n\n\n The steps within a pay grade award raises are based on:<\/p>\n\n\n\n The raises between pay grades are affected by:<\/p>\n\n\n\n For example, an art designer starting at a company will be working on illustrations and website layout based on the input and instructions from supervisors. After some time, they gain more autonomy, and need little consultation, at the same time providing excellent results.<\/p>\n\n\n\n This awards the designer pay raises within their pay grade as a junior designer.<\/b><\/p>\n\n\n\n Later, they are assigned to be a supervisor to a new designer and help with their tasks.<\/p>\n\n\n\n The designer moves to a new pay grade, and along with new steps in experience and time worked, they earn raises.<\/b><\/p>\n\n\n\n Ultimately, they can become the chief supervisor for an entire design team, earning the top of the pay grade for their position as a designer. They no longer work on the website layout and logos, for example, but make creative decisions and delegate tasks to others. Their concerns are now big-picture and work on larger projects.<\/p>\n\n\n\n The designer moves to the highest pay grade possible for that particular job position. <\/b><\/p>\n\n\n\n A higher pay grade than their current top salary would require a change of position or company.<\/p>\n\n\n\n You may have noticed in the table above, that some salaries overlap. For example, a $36k salary on the high end of pay grade 1 is seen on the lower end of pay grade 2.<\/p>\n\n\n\n This is because not all employees will start their job at a company at grade 1. This is normally reserved for industry beginners or employees fresh out of college. If a more experienced candidate applies, they can start at grade 2 or even 3.<\/p>\n\n\n\n On top of that, this kind of pay range allows for more flexibility. It lets employees receive financial benefits without necessarily having to accept promotions and responsibilities they\u2019re not ready for. Not to mention that, for the CFO, this is the most financially-friendly option for the company budget.<\/p>\n\n\n\n This is entirely optional and, as mentioned before, depends on the industry and company itself.<\/p>\n\n\n\n For example, the federal government has 15 pay grades. Larger companies can have between 10-15, and small ones may not need more than five for each department.<\/p>\n\n\n\n The one thing to keep in mind is that the pay grade number needs to reflect your structure and work in favor of both the company and the employees.<\/p>\n\n\n\n While determining the percentage is completely up to you, around 2,5% or 3% yearly seem to be universally accepted. However, keep in mind that the raise is also reflective of what you wish to achieve with it. Because if you want to keep an employee that considers transferring to a new company, you will offer them a larger raise than their peers, for example.<\/p>\n\n\n\n With annual or bi-annual reviews, you can give timely feedback to employees, and give a pay raise as a reward to high-performing employees. This is a more demanding method for supervisors, but the most motivating one for employees. Good work gets recognized and further incentivized. You increase the chances of retaining productive workers who provide a stream of great results.<\/p>\n\n\n\n Merit raises can be given across all departments. The main difference from regular raises is that they don\u2019t have a set time when they\u2019re given. Merit raises are tied to specific goals, whether with the employee\u2019s career development (new skills learned, improved numbers and data) or with the projects the employees are involved with.<\/p>\n\n\n\n To be able to give raises based on merit you need:<\/p>\n\n\n\n When you can objectively look at your employee\u2019s performance, it becomes easier to determine who gets a pay raise based on how much they benefit the company. Had everyone gotten a 2% raise instead of just one or two people, the company would have lost significant amounts of money.<\/p>\n\n\n\n Additionally, with this merit-based system, you avoid any doubts about favoritism. But keep in mind that doing detailed data tracking for every employee can put a strain on manpower and resources. For this reason, some businesses opt out of this method.<\/p>\n\n\n\n First of all, \u201ca good pay raise\u201d depends on the country you live in, the industry standard, and most importantly, the company itself. The size of the business, your current financial state, the market demand, clients\u2026 it all plays into the amount of money at your disposal for pay raises. And that is why the percentage of the raise depends on the employer.<\/p>\n\n\n\n However, there is a \u201cguideline\u201d of sorts that some companies go by. Employers have the possibility to look at projections and expected nation-wide pay raises<\/a>. For the year 2020, it looks like this:<\/p>\n\n\n\n Low-performing workers<\/b> can expect a pay raise of 1% or less (which seems to be a continuing trend from the past years).<\/p>\n\n\n\n High-performing workers<\/b> can expect as much as a 4.6% pay raise (less from the predicted 5% last year).<\/p>\n\n\n\n The average<\/b> pay raise remains the standard 2.7% – 3%.<\/p>\n\n\n\n To emphasize, these are simply projections based on the labor market, collective budget, and more. These can be great reference points, which you further adjust based on your own financial standing.<\/p>\n\n\n\n To be able to give fair raises in a timely manner, but also keep your finances in check, you need a framework to rely on. Something to consult to ensure objectivity and avoid guesstimating.<\/p>\n\n\n\n A good, objective and fair pay raise system depends on:<\/p>\n\n\n\n Your pay raises should be included in the budgeting plans for the year. Of course, each year is different, and when some are more successful than others, it will reflect on employees\u2019 finances as well.<\/p>\n\n\n\n Layoffs, pay cuts, and market disruptions are very real, and they can all affect how you distribute the budget. That is why you must revise and adapt your plan once or twice a year to reflect those changes.<\/p>\n\n\n\n Employees should know what their roadmap to a new pay grade looks like. Many companies seem to shy away from these pieces of information like they\u2019re trade secrets.<\/p>\n\n\n\n But if you want to nurture transparency and motivate your employees to work as hard as they can, they should be aware of what it takes to reach that next milestone. Let them know how long they need to work here for that next pay raise, if they need new skills or responsibilities, etc.<\/p>\n\n\n\n Note: Check if a pay raise is going to change the status of an employee when it comes to overtime. If this move is going to make them exempt from overtime pay, it\u2019s your legal obligation to inform them.<\/p>\n\n\n\n More information on compensatory time and who is exempt and non-exempt from overtime pay:<\/p>\n\n\n\n Pay equity is a way to ensure that everyone gets paid fairly, regardless of their race, gender, or ability. It\u2019s there to show there is no discrimination in employee treatment. Almost all of the states have revised their federal laws on pay equity and are implementing a more fair system.<\/p>\n\n\n\n Some of these new practices include:<\/p>\n\n\n\n As you\u2019ve seen, you can give out pay raises based on a number of different factors. <\/span><\/p>\n\n\n\n But let\u2019s mention one of the most common ways to calculate your employee\u2019s wage \u2014 hourly work.<\/span><\/p>\n\n\n\n Enter Clockify<\/b> by CAKE.com<\/a><\/strong> \u2014 a team tracking tool that identifies high performers. With the timer option in Clockify, your team needs to type in what they\u2019re working on, click on Start, and voila!<\/span><\/p>\n\n\n\n The clock is ticking.<\/span><\/p>\n\n\n This is the first step to awarding your team members who deserve it. <\/span><\/p>\n\n\n\n The next step is to use the Weekly report in Clockify.<\/span><\/p>\n\n\n With this powerful feature, you can check if some of your employees haven\u2019t tracked any time. Apart from that, you can show:<\/span><\/p>\n\n\n\n That way, you get a better insight into who contributes the most with the least labor cost. <\/span><\/p>\n\n\n\n Hold your horses:<\/b> Measuring time spent at work shouldn\u2019t be the only relevant metric. But, at the very least, this information can be useful coupled with other criteria, like concrete results. <\/span><\/p>\n\n\n\n If that doesn\u2019t cut it for you, you can also turn on weekly emails \u2014 a quick digest of what projects got the most attention last week. Just go to your Profile settings when you click on your photo in the top right corner and turn on weekly report emails.<\/span><\/p>\n\n\n You can use this and other time tracking data to craft your budget in a way that accounts for future raises.<\/span><\/p>\n\n\n\n All you need to do is pick the Clockify plan<\/a> packed with features that align with your business needs. <\/p>\n\n\nCalculating flat rate pay raise<\/h4>\n\n\n\n
Calculating pay raise in percentages<\/h4>\n\n\n\n
Converting flat-rate pay raise to a percentile<\/h4>\n\n\n\n
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\n <\/picture>\n <\/div>\n<\/div>\n \n\n\n\nWhen should you give a raise?<\/h2>\n\n\n\n
Regular raises based on time spent in the company<\/h3>\n\n\n\n
Raises based on market demand and internal value<\/h3>\n\n\n\n
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Raises based on pay grade<\/h3>\n\n\n\n
How do pay grade raises work?<\/h4>\n\n\n\n
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Why do some pay raises overlap between pay grades?<\/h4>\n\n\n\n
How many pay grades should I have?<\/h4>\n\n\n\n
Raises based on performance or merit<\/h3>\n\n\n\n
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What is a good pay raise?<\/h2>\n\n\n\n
How to build a solid pay raise system<\/h2>\n\n\n\n
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Make yearly plans and revise them<\/h3>\n\n\n\n
Be transparent about the pay grade range and raises<\/h3>\n\n\n\n
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Pay equity is a MUST<\/h3>\n\n\n\n
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Use Clockify by CAKE.com to make pay raises more objective<\/span><\/h2>\n\n\n\n
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