Salary increases depend on many factors, such as whether you have been promoted or graduated, or whether you have accepted a new, better-paying job. Regardless of the circumstances, you are probably interested in knowing how to calculate the increase in percentage terms compared to the previous pay. Given that the inflation rate and cost of living statistics are often expressed in the form of percentages, knowing the salary increase in the same terms allows you to make comparisons; it also allows you to compare your salary with that received by other people working in the same sector as you.
Steps
Part 1 of 2: Percentage Increase
Step 1. Subtract the value of the old from the new salary
Let's assume that your old job had a salary of 45,000 euros per year and that you have now accepted a 50,000 euros salary. This means you have to subtract 45,000 from 50,000. Therefore 50,000 - 45,000 = 5,000 €.
If you have always received an hourly wage and do not know the annual value, you can compare the previous hourly wage with the current one. For example, if you went from € 14 to € 16 / h, the increase is € 2 / h
Step 2. Divide the difference by the old salary
To know the percentage increase, you must first calculate it as a decimal value. To do this, take the difference you found in step 1 and divide it by your old salary.
- Always considering the previous example, it means that you have to take the € 5,000 and divide it by 45,000: 5000 / 45,000 = 0.11.
- If you are calculating the percentage increase in hourly wages, proceed in the same way anyway. Keeping the values of the previous example, observe that 2/14 = 0, 143.
Step 3. Multiply the decimal number you got by 100
To transform the value you have obtained into a percentage, you just have to multiply it by 100. Let's always consider the example of the previous step and multiply 0, 111 x 100 = 11, 1%. This means that the new salary of € 50,000 is approximately 11.1% higher than the old salary, or that you have received an increase of 11.1%.
For the example of hourly wages, multiply the decimal by 100. So here is 0, 143 x 100 = 14, 3%
Step 4. Consider additional benefits (if any)
If you are comparing the new job in the new company and not just a salary increase or promotion in your current company, then the salary may be just one of the improvements you need to evaluate. There is a wide range of variables to consider, which increase your economic well-being. Here are some of them:
- Insurance premiums or benefits: if both jobs offer personal insurance to employees, then you need to compare the policies. Also consider whether you need to contribute to the payment of the insurance premium. If you have to pay € 100 or € 200 per month to contribute to the insurance premium without enjoying benefits, then know that this could cancel part of the salary increase. Also consider how much is covered by the policy: whether dental and eye expenses are also provided and whether there are any charges against you.
- Bonuses and commissions. Although they are not part of your fixed salary, do not forget bonuses and / or commissions in your calculations. The new job may offer you a higher monthly pay, but if the current one offers potential rewards on a quarterly basis, for example, then is the new offer still affordable?
- Pension plans. Some companies offer retirement fund plans that allow you to set aside gross wages for retirement. Many companies pay into these pension funds an amount equal to that paid by the employee, practically doubling the provision. If your current company does not offer you similar treatment while your new one does, you must consider it as extra money that you will enjoy when you retire from work.
- Seniority contribution. By contract, many firms provide for a gradual increase in salary based on the employee's years of "loyalty". If your current job has this kind of benefit and your new one doesn't, then you need to take this into account. A higher annual salary means more money immediately, but it is also worth making a calculation in the long run.
Part 2 of 2: Compare with the Inflation Rate
Step 1. Understand inflation
This is the increase in the cost of goods and services and therefore affects the cost of living. High inflation, for example, means that food, utilities and gasoline go up in price. People reduce consumption during inflation peaks because the costs are higher in these periods.
Step 2. Check inflation
This is determined by a wide range of factors. In Italy, ISTAT calculates inflation monthly. You can visit its website to find the reference data you need.
Step 3. Subtract the inflation rate from your percentage increase
To understand the effect that inflation has on your increased salary, simply subtract the percentage increase (as you calculated in the first part of the tutorial) and the inflation rate. For example, suppose the inflation rate for this year is 1.6%. Using the percentage increase in salary of 11.1% (calculated in the first part), you can determine how this is modified by the increase in the cost of living: 11, 1 - 1, 6 = 9.5%. This means that you will have to take into account the increase in consumer goods and services that will "erode" part of your increase which will be "only" 9.5%, since your money will be worth 1.6% less. compared to the previous year.
In other words, the same consumption will cost you about 1.6% more than the year before
Step 4. Link the effect of inflation to purchasing power
This concept refers to the comparison of the costs of goods and services over time. Suppose you have a salary of € 50,000 per year. Let's consider that inflation was 0% in the year you enjoyed the increase, but then it reached 1.6% the following year without you having received another wage increase. This means that you will have to spend 1.6% more to buy the same basic goods you bought the previous year. 1.6% of € 50,000 is equal to 0, 016 x 50,000 = € 800. Your purchasing power has dropped by 800 euros compared to last year.
You can find online calculators that help you with these steps. Do some research on the internet
Advice
- You can find many online calculators that allow you to find the percentage increase in wages very quickly.
- This method works regardless of the currency in which the salary is expressed.
