Pay Rise
How much a raise adds, in money and as a percentage.
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Formula
How the calculation works
A rise is a percentage of the old salary, because that is the base it is added to. Going from 40,000 to 44,000 is 4,000, which is 10% of 40,000. Dividing that 4,000 by the new 44,000 gives 9.1% and understates the raise, because the denominator has to be the figure you started from.
The percentage is what travels across time, the money is what is local to your salary. The same 4,000 rise is 10% on 40,000 but only 5% on 80,000, so two people with an identical cash increase have very different raises, and only the percentage can be compared against inflation.
The number to set the percentage against is inflation. A 5% raise when prices rose 8% leaves you about 3% worse off in buying power, since 1.05 divided by 1.08 is 0.972. The tool also reads a cut honestly: a new salary below the old returns a negative percentage rather than failing, and the current salary has to be above zero for a base to exist.
Common mistakes
- Dividing the rise by the new salary. A 4,000 rise to 44,000 read as 4,000 over 44,000 is 9.1%, but the raise is 10% of the 40,000 you started on.
- Calling any increase a gain without checking inflation. A 5% raise against 8% inflation is a real cut in what you can buy.
- Assuming the gross percentage is what you keep. A raise that pushes income into a higher tax band can add less to take-home than the percentage suggests.
When to use it
- Use it to see what a raise is worth in money and as a percentage, and to hold that percentage against inflation.
- It is the wrong tool for what actually lands in the bank, which depends on tax; for that use the take-home pay calculator, and to weigh a whole new offer use the job offer comparison.
Worked example
40,000 to 44,000 adds 4,000, a rise of 10%.
Common questions
What if prices rose faster?
Then the raise may not keep up. Compare the percentages: a 5% raise against 8% inflation is a real cut.
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