GUIDESMONEY MATTERS
What Is Meant By a Salary Increment & How To Calculate It?
5 MIN • 
LAST EDITED BY ANOOP MENON ON JULY 29, 2025.
LAST EDITED BY ANOOP MENON ON JULY 29, 2025.
GUIDES LAST EDITED BY ANOOP MENON ON JULY 29, 2025.
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.
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.
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:
Your guide to writing effective appraisal letters is here !
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.
Learn how to calculate a salary 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.
[(new salary) - (current salary) / (current salary)] x 100
Let us put values in it to see it in action. Assuming your initial salary was ₹50k
[(₹60K - ₹50K) / ₹50K] x 100 = (₹10K / ₹50K) x 100 = 20%
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 & assuming your initial salary was ₹50k, then this is simple to calculate using the formula:
[(increment amount) / (current salary)] x 100
It translates to (₹10K / ₹50K) X 100 = 20%
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:
[{(percentage hike) x 1/100} x (current salary) + (current salary)]
Here is how it works out, stepwise, in the current assumption.
[(20 x 1/100) X ₹50K] + ₹50K
[(20/100) x 50K] + 50 K
(0.02 x 50K)+ ₹50K
₹10K + ₹50K = ₹60K
As you can see, there are different paths to arrive at the same destination. It depends on how your organisation rolls out salary increments.
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.
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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.
The formulae for calculating the increment in the three most common scenarios are:
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 & several market factors. Ultimately, the employer determines the salary increase.
Giving feedback for a salary increment can be a delicate matter, so it's essential to approach the conversation with tact and professionalism.
