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Learn how to calculate salary increments and uncover the factors that determine the percentage. Explore various scenarios, calculation methods, and considerations for fair compensation.

What Is Meant By a Salary Increment & How To Calculate It?

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"What Is Meant By a Salary Increment & How To Calculate It?"

Anoop Menon

Daily lessons in finance, a.k.a how to live it up without losing it

<p>
    Employees eagerly anticipate salary increments to recognise their hard work throughout the year. However, determining the factors and calculations behind these increments can be complex. Several elements contribute to the final percentage, from performance evaluations to industry and company conditions.
   </p><h2>
    <strong>
     Decoding Salary Increments
    </strong>
   </h2><p>
    A pay hike is an essential part of the yearly working calendar and is usually determined as the percentage of your annual salary. Furthermore, it forms a crucial baseline for salary negotiations with prospective employers if you have been contemplating a role, position, or company change.
   </p><h2>
    <strong>
     Factors Affecting Salary Increment
    </strong>
   </h2><p>
    Salary increments are typically based on yearly performance appraisals, which assess an employee's fulfillment of annual targets, key performance indicators (KPIs), and key responsible areas (KRAs), and award a performance rating (e.g. Average, Exceptional). This rating determines the eventual salary increment, but it is no longer the only factor considered by many organizations. Other factors that play a vital role include:
   </p><ul role="list">
    <li>
     The economic situation of the industry you are employed in, such as IT, Banking, Telecom, Healthcare, etc.
    </li>
    <li>
     The financial condition of your organisation, its net profits, growth, etc.
    </li>
    <li>
     The salary budget received by your department or function.
    </li>
    <li>
     Your specific tenure of service, personal qualifications, if serving in a niche role, and so on.
    </li>
   </ul><blockquote>
    Your guide to writing effective appraisal letters is
    <a href="https://fi.money/blog/posts/how-to-write-an-effective-self-appraisal" target="_blank">
     here
    </a>
    !
   </blockquote><h2>
    <strong>
     How To Calculate Salary Increment Percentage?
    </strong>
   </h2><p>
    Some companies provide salary increments in absolute figures while others offer increments as a percentage of current salary. Understanding the percentage hike becomes imperative if your company follows this method.
   </p><h2>
    <strong>
     Key Terms in Salary Calculation
    </strong>
   </h2><ol role="list">
    <li>
     Gross Salary - Overall salary, including all amounts in your CTC.
    </li>
    <li>
     Net Salary - Actual salary after deductions such as provident fund, income tax, etc.
    </li>
    <li>
     Take-Home Salary - A more colloquial phrase for net salary.
    </li>
   </ol><h2>
    <strong>
     Calculating your salary increment under various conditions
    </strong>
   </h2><h3>
    <strong>
     When the New (Absolute) Salary Figure is Provided
    </strong>
   </h3><p>
    Learn how to calculate a
    <a href="https://fi.money/blog/posts/how-to-calculate-basic-salary-factors-different-components" target="_blank">
     salary
    </a>
    increment in different scenarios when employers declare them. The company sends a letter informing employees of their new salary after the pay hike. If your new salary is ₹60K, you can calculate the increment percentage using a formula.
   </p><p>
    <strong>
     [(new salary) - (current salary) / (current salary)] x 100
    </strong>
   </p><p>
    Let us put values in it to see it in action. Assuming your initial salary was ₹50k
   </p><p>
    [(₹60K - ₹50K) / ₹50K] x 100 = (₹10K / ₹50K) x 100 = 20%
   </p><h3>
    <strong>
     When Only Increment Figure is Provided
    </strong>
   </h3><p>
    Another common way of informing employees regarding their increment is by providing the figure for the raise in the salary. In case you have received an absolute increment of ₹10K per month &amp; assuming your initial salary was ₹50k, then this is simple to calculate using the formula:
   </p><p>
    <strong>
     [(increment amount) / (current salary)] x 100
    </strong>
   </p><p>
    It translates to (₹10K / ₹50K) X 100 = 20%
   </p><h3>
    <strong>
     When Percentage Hike is Provided
    </strong>
   </h3><p>
    Salary increments are often communicated through a percentage increase above the current salary. This approach was developed to maintain confidentiality of pay scales and avoid disputes among employees. If your employer uses this method, you will need to calculate the actual amount of the increase. For example, if you received a 20% increase and your initial salary was ₹50k, the formula is:
   </p><p>
    <strong>
     [{(percentage hike) x 1/100} x (current salary) + (current salary)]
    </strong>
   </p><p>
    Here is how it works out, stepwise, in the current assumption.
   </p><p>
    [(20 x 1/100) X ₹50K] + ₹50K
   </p><p>
    [(20/100) x 50K] + 50 K
   </p><p>
    (0.02 x 50K)+ ₹50K
   </p><p>
    ₹10K + ₹50K = ₹60K
   </p><p>
    As you can see, there are different paths to arrive at the same destination. It depends on how your organisation rolls out salary increments.
   </p><h2>
    <strong>
     Conclusion
    </strong>
   </h2><p>
    Understanding how salary increments get calculated is essential for employees seeking transparency and fair compensation. While performance evaluations are crucial, other factors like industry conditions, company finances, and individual qualifications also impact the percentage. By comprehending the different calculation methods, employees can clarify their salary increments and make informed career decisions.
   </p><h2>
    <strong>
     Got Your Salary Increment: Ready To Make Better Financial Plans?
    </strong>
   </h2><p>
    Fi, in partnership with Federal Bank, offers a salary program with many benefits, including 2% cash back on UPI and debit card purchases, 4x Fi-Coins on all spending, and exclusive deals from top brands like Amazon and Swiggy. Other perks include a free VISA Platinum debit card with zero forex charges, no minimum balance, priority customer service, and a ₹500 Amazon voucher as a joining bonus. Fi also offers features like Connected Accounts, Analyser, Goal-based saving, SIPs, and automatic payments to help you manage and grow your money. Salary users on Fi can now top-up their Health Insurance up to ₹20L.
   </p><h2>
    <strong>
     Frequently Asked Questions
    </strong>
   </h2><h3>
    <strong>
     1. What is the annual salary increment in the private sector?
    </strong>
   </h3><p>
    The pandemic and economic slowdown caused lower wages and salary increments. However, reports suggest that salary increments are almost back to pre-pandemic levels in the private sector, with an average of 9%. The increment varies among sectors, companies, and roles.
   </p><h3>
    <strong>
     2. How to calculate a salary increment?
    </strong>
   </h3><p>
    The formulae for calculating the increment in the three most common scenarios are:
   </p><ul role="list">
    <li>
     <strong>
      [(new salary) - (current salary) / (current salary)] x 100;
     </strong>
     when only the new salary amount is provided
    </li>
    <li>
     <strong>
      [(increment amount) / (current salary)] x 100;
     </strong>
     when only the incremental value is provided, and
    </li>
    <li>
     <strong>
      [{(percentage hike) x 1/100} x (current salary) + (current salary)];
     </strong>
     when the hike percentage is provided.
    </li>
   </ul><h3>
    <strong>
     3. How do you ask for a salary increase during your appraisal?
    </strong>
   </h3><ul role="list">
    <li>
     Research the average salary range for your role in your industry and location
    </li>
    <li>
     Highlight your achievements over the past year during the appraisal meeting
    </li>
    <li>
     Be specific about the amount you're seeking and why
    </li>
    <li>
     Listen to feedback and be open to negotiation or alternative options
    </li>
    <li>
     Approach the conversation with confidence and respect‍
    </li>
   </ul><h3>
    <strong>
     4. What's the usual increase in the percentage of your salary during appraisals?
    </strong>
   </h3><p>
    Generally, a typical salary increase during an appraisal ranges from 5% to 15% of the employee's current salary. However, this varies from industry to industry &amp; several market factors. Ultimately, the employer determines the salary increase.
   </p><h3>
    <strong>
     5. How do I give feedback regarding salary increments?
    </strong>
   </h3><p>
    Giving feedback for a salary increment can be a delicate matter, so it's essential to approach the conversation with tact and professionalism.
   </p><ol role="list">
    <li>
     Provide specific examples of your contributions and accomplishments.
    </li>
    <li>
     Highlight the positive results of your work.
    </li>
    <li>
     Research the salary range for your position and experience level.
    </li>
    <li>
     Be open to negotiation or alternative options.
    </li>
   </ol>

What Is Meant By a Salary Increment & How To Calculate It? | Fi Money

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