Salary increment letter format, calculation and free templates

Having fair and well-organised processes for promotions and salary increments can significantly boost employee satisfaction and reduce turnover.

To help retain employees and ensure they feel valued, it’s essential for employers to provide regular salary hikes. In this guide, you’ll learn the what a salary increment is, how to calculate them, salary increment letter format, and sample letter templates.

Salary increment meaning

A salary increment is an increase in an employee's compensation, usually occurring on an annual basis. An increment in salary is often viewed as a tangible reward for an employee's hard work and dedication. When employees know that their efforts can lead to financial rewards, they are more likely to stay motivated and productive.

In India, employers typically announce salary increments as percentages, allowing them to clearly see the overall impact on an employee's salary.

Factors influencing salary increments

When determining salary increments, employers need to consider the following factors:

1. Job performance: In most organisations, the primary basis for a salary increment is the employee’s performance. Employees who excel in their roles tend to receive higher salary increments. For example, consistently meeting or exceeding sales targets or delivering top-quality work can result in a substantial raise.
2. Market conditions: Salary increments are also influenced by market conditions. Companies often adjust salaries based on industry trends and the broader economic environment. During periods of economic growth, for instance, companies offer larger raises to retain valuable employees.
3. Company profitability and industry standards: A company's financial health plays a significant role in determining salary increments. If a company is performing well, employees are more likely to receive more generous hikes.
4. Years of experience and education level: An employee's experience and education level can impact their salary increment. Experienced professionals with significant expertise often receive higher salary increases compared to those who are early in their careers.
5. Market demand: The market value of an employee's position, skills and experience relative to industry standards also plays a key role in determining their salary increments.

Salary increment procedure

To calculate a salary increment in India, employers need to follow these steps:

Step 1: Identify the employee’s existing salary, which could be either monthly or annual salary.

Step 2: Decide whether the increment is performance-based, merit-based or related to a promotion.

Step 3: Determine the increment amount or percentage which could be due to an employee’s promotion or change in any component of the salary structure.

Step 4: Add the increment amount to the employee’s current salary to find the new salary.

How to calculate salary increment percentage the right way?

To accurately calculate the salary increment percentage, you need to understand the key components of your employee’s salary:

1. Gross salary: This is the total earnings of an employee, including basic pay, commissions, incentives, and allowances.
2. Net salary (take-home salary): This is the amount an employee receives after deductions such as taxes and Provident Fund (PF) contributions are made from the gross salary.
3. Cost to Company (CTC): CTC represents the total cost incurred by the employer for employing an individual. It includes the gross salary, bonuses, employer contributions to PF, and additional perks like meal coupons, group health insurance, and other benefits.

Now there are two main methods to calculate a salary increment:

1. Calculating the salary increment amount

To determine the salary increment amount, first find the difference between the current salary and the new salary. For example, if an employee's current salary is ₹5,00,000 and the new salary is ₹5,15,000, the increment amount is ₹15,000.

2. Calculating the salary increment percentage

To calculate the percentage increase, divide the increment amount by the current salary and then multiply by 100.

Using the example above:

Increment percentage = (15,000/5,00,000) X 100 = 3%

This means the employee has received a 3% salary increment.

Salary increment letter

Here is a sample of a salary increment letter that employers can customise and send to an employee when there’s an increase in salary.

Standard salary increment letter

To,
(Name of the employee)
Employee ID: XXXXXXXXX
SEO Executive 
Zylker Private Limited

Subject: Congratulations! Your salary has been revised

Dear (Name of the employee),

We want to express our heartfelt gratitude to you for your contributions and commitment to the goals of Zylker. We are delighted to announce an increase in your salary as a token of appreciation for your efforts.

Effective from 1st November 2024, your revised annual CTC will be ₹8,00,000.

Here are the details of your new salary structure:

Previous salary (CTC per annum): ₹7,00,000/-
Increment: ₹1,00,000/-
New salary (CTC per annum): ₹8,00,000/-

You are welcome to contact the HR department for any further information. We are excited about your commitment and eagerly anticipate your accomplishments at Zylker Private Limited. Wishing you a successful and rewarding career moving forward.

Best regards,
(Name),
Human Resources Manager
Zylker Private Limited

Simple salary increment letter Word format

[Date]

Dear [Employee’s name],

Subject: Salary increment notification

We are pleased to inform you that based on your performance and contributions to [Company name], we have decided to grant you a salary increment.

Effective from [effective date], your new salary will be [new salary amount] per [month/year]. This increment reflects our appreciation for your hard work, dedication, and the value you bring to the team.

Your updated salary details will be reflected in your [next pay slip/coming payroll cycle]. Should you have any questions regarding this increment or need further clarification, please feel free to reach out to us.

Once again, congratulations on your well-deserved increment. We look forward to your continued contributions and success at [Company name].

Sincerely,
[Your name]
[Your position]
[Company name]

Download the salary increment letter in Word format

What to include in your salary increment email?

When drafting a salary increment email, it is important to cover key elements that convey the message clearly and professionally. Here is a breakdown of the components you should include:

• Start with the company’s name, address and contact details.
• Include the date when the letter is being issued.
• Mention the employee’s name, job title and address.
• Begin with a warm note, recognising the employee’s contributions to the company.
• Clearly outline the specifics of the salary increase, including the new salary amount, the effective date and any additional benefits.
• Provide the reasons behind the increment, such as outstanding performance, prevailing market conditions or company growth.
• Mention any conditions linked to the increment, like mentoring new team members, or taking up additional responsibilities.
• Encourage the employee to continue their dedication and express appreciation for their work.

This structure ensures your email is clear and appreciative and covers all necessary points while being easy for both employers and employees to understand.

How to negotiate a salary increment with an employee?

To retain top talent, you should take measures to ensure that deserving employees receive timely recognition. Employees naturally expect their hard work to be acknowledged with a raise. If these expectations are not met, you risk losing valuable team members.

Here is how to effectively negotiate a salary increment with an employee:

• Be proactive: Do not wait for employees to come to you asking for a raise. Identify deserving individuals early.
• Initiate the conversation: Schedule a one-on-one meeting with the employee to discuss their salary increment.
• Foster open dialogue: Engage in an honest conversation where both parties can share their perspectives.
• Explain the decision: Clearly communicate the reasons for either approving or denying the increment.
• Find a fair solution: Aim to reach an agreement that is fair and satisfactory for both you and the employee.
• Outline next steps: Convey what the employee can expect moving forward.

Key takeaways

Understanding and effectively managing salary increments is crucial for maintaining a motivated and loyal workforce. By offering fair and competitive raises, employers can ensure their business remains a desirable place to work, ultimately contributing to long-term success.

To streamline the salary increment process, switch to cloud-based payroll software like Zoho Payroll. The software simplifies the process of revising salaries by automating payroll calculations, ensuring accurate and timely payments to your employees.

Frequently asked questions