How to calculate salary hike percentage in India

A salary hike refers to an increase in an employee’s Cost to Company (CTC), indicating an upward adjustment in their compensation package. Employers typically grant these raises based on job performance, experience, inflation, or changes in the job market. Salary hikes are important milestones as they recognise employees’ contributions and reflect the company’s commitment towards them.

In this article, we’ll learn the factors determining salary hikes, how to calculate hike percentage, and provide examples of salary hike calculations.

Factors determining the hike percentage

When determining the percentage of salary hikes for your employees, consider the following factors:

1. Performance: Employee performance is a key factor in deciding the raise percentage. High-performing employees often receive larger increases as a reward for their contributions and to motivate continued excellence.
2. Inflation rates: When inflation rates are high, offering higher raises may be necessary to ensure that employees maintain their standard of living.
3. Industry standards: Staying competitive within your industry is essential. In highly competitive industries, offering higher raises can help attract and retain top talent.
4. Company’s financial health: The financial condition of your company directly affects your ability to offer raises. Companies with strong financial performance are better positioned to offer substantial hikes, while those with tighter budgets may need to adjust raise percentages accordingly.

How to calculate a hike percentage in salary

Follow these steps to calculate the hike percentage from an employee’s current salary to the revised salary:

Step 1: Identify the employee’s current salary. This could be their monthly or annual CTC.

Step 2: Next, decide on the new salary after the hike. This could be due to a raise, promotion, or compensation adjustment.

Step 3: Calculate the salary difference by subtracting the current salary from the new salary to find the increase in the employee’s pay.

Step 4: Determine the hike percentage. To do this, divide the salary difference by the current salary and multiply the result by 100.

This method ensures you can accurately calculate the hike percentage and communicate the value of the increase to your employees.

Hike percentage calculation formula

Use the following formula to quickly calculate your employees’ salary hikes: Here is the hike percentage formula that you can use to quickly determine your employees’ salary hikes:

Salary hike percentage = [(New salary − Current salary)/ Current salary] × 100

Why salary hikes are important

Salary hikes directly acknowledge an employee's hard work, dedication, and contributions, reflecting appreciation for their achievements. As the cost of living rises, salary hikes help employees maintain their purchasing power and financial stability.

Regular pay raises also signify career advancement. Employees who receive annual salary increases are often more motivated, perform better, and consistently meet their targets.

Key takeaways

Understanding how to calculate hike percentages is essential for ensuring fair and accurate compensation. With cloud-based payroll software like Zoho Payroll, employers can automatically calculate revised salaries based on the hike percentage, simplifying the salary revision process.

The software also provides features like automated payroll processing, tax calculations, and direct salary deposits, ensuring employees are paid accurately and on time.

Frequently asked questions on hike percentage

1. How is the hike percentage calculated?

To calculate the salary hike percentage, use this simple formula:
[(New salary − Current salary)/ Current salary] × 100 

Here is how employers need to do it:

• Begin by subtracting the old salary from the new salary to get the difference.
• Take the difference you calculated and divide it by the old salary.
• Finally, multiply the result by 100 to express the hike as a percentage.

2. How to calculate a 10% hike in salary?

To calculate a 10% salary hike, multiply the current salary by 1.10. This will add a 10% increase to the existing salary.