Many workers, including those who have gotten raises, have discovered that their earnings aren’t enough to pay growing prices due to skyrocketing inflation over the previous year. Two-thirds of those who received raises received raises ranging from 1% to 5% of their wage, significantly below the current rate of inflation.
Employees have the upper hand in a hot employment market, according to talk of the Great Resignation and labor shortages. People who stay in their positions, meanwhile, may fall behind financially, thanks to inflation of roughly 8% over the past year.
Shannon, an assistant manager at a Minnesota women’s clothes company, received a 3% merit raise last summer, bringing her hourly wage from $18 to $18.54.
Shannon, who requested that her last name not be used because she still works at the store, adds, “It slapped me in the face a little bit because the store was doing great.”
Most of her store’s colleagues received even lower raises, she added, of roughly 15 cents per hour.
The 44 percent of respondents who had not received a raise startled Jay Starkman, founder and CEO of human resources startup Engage PEO, especially in a job market with plenty of openings.
“I don’t see how firms can keep employees in this age without offering them raises on a regular basis,” adds Starkman. “These employees who aren’t getting raises will be fired.”
How much should your pay rise in line with inflation?
In the last six years, an average of 31% of companies have given average raises of 3% or more. In 2022, 44% of companies intend to grant salary raises of more than 3%. Inflation was 7.5 percent higher in January 2022 than it was a year earlier, a 40-year high.
Is a 3% rise sufficient?
An annual pay raise of 3% may not seem like much, especially in light of recent events in the world. But it’s better than nothing in today’s environment. Remember that little increments add up over time and can culminate in a very high pay.
Are corporations increasing wages to keep up with inflation?
In fact, nearly 85% of businesses tell Payscale they are concerned about inflation, but most aren’t increasing wages to keep up. According to the most recent consumer price index, yearly inflation reached 7.5 percent last month.
Is a 2% rise sufficient?
We normally conceive of pay hikes as a reward for outstanding performance or long-term devotion. There are, however, several different types of wage hikes.
Adjustments for Living Costs (COLA). Things get a little more expensive every year. Inflation is the term for this. We’ve all heard grandparents brag about how much they could get for a cent back in the day, and that’s exactly what we’re talking about. Real wages and nominal wages are two words that must be understood in this context.
Increase in the minimum wage. Using a dollar number, the amount of your pay has grown. Your nominal wage rise would be $5,000 if you were paid $50,000 last year and $55,000 this year.
Increase in real wages. Your pay has increased in terms of purchasing power rather than dollar worth. Inflation is factored into the real pay rise. So, in the above example, you may have received a 10% nominal wage rise, but with a 2% inflation rate, your real wage gain was only 8%.
Essentially, cost of living adjustments ensure that your purchasing power remains constant from year to year. If the inflation rate for 2019-20 was 2%, a 2% rise would equate to you earning the same amount of money this year as you did last year. It’s only a small increase, but it’s enough to keep your compensation in line with the cost of living.
Pay rise depending on performance. This is the most common type of raise; you perform better at work, and your company rewards you with a pay increase. Organizations have budgeted a 3.6 percent pay increase for high performers, 2.5 percent for middle performers, and 0.6 percent for low performers, according to the WorldatWork Salary Budget Survey 2019-2020, indicating a significant difference in merit-based pay increases depending on your performance level.
In addition, 76 percent of employers planned to award yearly performance bonuses (not salary increases) in 2020, averaging 11 percent of exempt employees’ total compensation and roughly 6% for non-exempt employees, according to the report.
Promotions. Everyone understands that one of the main reasons people strive for promotions is because they typically come with greater money. A promotion comes with new or more duties, whereas a performance-based pay rise incentivizes and rewards you for superior work at your present position. Promotional raises are budgeted separately by 54% of companies. The average promotional increase in 2019 was 9.3 percent.
Raising of capital. Employed to ensure that employees are paid equally for equal labor. Although we discussed equity increases in the context of women and minorities, they are also used in the following instances.
Are you entitled to an annual raise?
If you’ve just begun a job, wait at least six months before asking for a raise. If you’ve been with the company for a year or more, your employer is more likely to grant you a raise. If you’ve worked for the company for a long time, you can ask once a year. If your boss wants to talk about your pay at a performance review, this “rule” may change. If this is the case, prepare your talking points ahead of time to give yourself the most leverage.
How do you ask for an inflation increase?
“The rate of inflation is increasing rapidly, and I’d like to talk to you about my existing wage and how we’re making sure that it stays equitable to compete in the current inflation rate,” Mustain suggests starting the conversation with your manager.
You might even bring up the inflation rate later in the meeting to bolster your case for more pay. Remember that your performance is the most essential argument in the conversation whenever you decide to bring it up.
Angelina Darrisaw, a career coach and founder and CEO of C-Suite Coach, advises, “Focus your conversation on the value you bring since that’s ultimately what will convince your employer to give you that wage boost.”
Consider the constraints of your employment and the objectives your supervisor set for you, then describe how you fulfilled or exceeded those objectives. Assume you’re a salesperson with a monthly goal of 30 sales. Make a big deal out of it if you’ve routinely made 35.
Is a wage rise of 4% beneficial?
What constitutes a reasonable raise is usually determined by the individual getting it. On average, companies offer employees a pay raise of 3-5 percent. Even if this range may not appear to be a fair rise, keep in mind that steady compensation increases over time can build up to a bigger salary than you received when you first started at the company.
While most employers will give you a monetary rise, they may also provide you a non-cash incentive or perk in lieu of or in addition to your monetary raise. This type of raise isn’t taken into account when calculating the percentage rise you may or may not have gotten. A non-monetary reward, such as a professional development program, can, on the other hand, help you optimize your earning potential in the future.
How to calculate salary increase: Flat raise
You decide how much more money you want to give the employee and add it to their annual compensation with a flat rise.
Divide the yearly salary by 52 (weekly), 26 (bimonthly), 24 (semimonthly), or 12 (monthly) to see how much the rise raises the employee’s weekly or biweekly gross compensation (monthly).
Example
Let’s imagine an employee earns $40,000 per year in gross wages. Their weekly gross pay is $769.23 ($40,000 / 52). You decide to give them a $2,000 raise as a one-time bonus. You’ll need to figure out how much their new weekly income will be and how much more they’ll get each week.
- Finally, take their former weekly pay and subtract them from their new weekly wages: $769.23 $807.69 = $38.46
The new annual salary for the employee is $42,000. Their new weekly compensation is $807.69, an increase of $38.46 above their previous pay.
You know the raise percentage you want to give
Calculate how much the raise will be and add that amount to the employee’s current earnings if you know what percentage you want to give. Multiply the raise percentage by the employee’s current salary, then add it to the employee’s annual gross salary. The formula is as follows:
Divide the employee’s annual wage by 52 (weekly), 26 (biweekly), 24 (semi-monthly), or 12 (monthly) to see how much their paycheck increases (monthly).
Let’s imagine you decide to provide a 4-percentage-point raise to an employee. The employee’s current salary is $50,000 per year and $1,923.08 per week ($50,000 / 26).
You’ll need to figure out how much of a raise they’ll get, their new annual wage, their new biweekly paycheck, and how much extra money they’ll get per payday.
- To begin, divide the percentage by the employee’s current yearly salary: $50,000 multiplied by.04 is $2,000
- Next, multiply the raise amount by the employee’s current annual salary: $50,000 plus $2,000 equals $52,000.
- Divide the new annual salary of the employee by 26: $52,000 divided by 26 is $2,000
- Subtract the prior biweekly payout amount from the new biweekly paycheck amount for the employee: $1,923.08 $2,000 = $76.92
The employee’s 4% raise is a $2000 increase in one lump sum. Their new yearly wage is $52,000. Their new biweekly compensation is $2,000, an increase of $76.92 over their previous biweekly pay.
Simply looking for the amount of the employee’s biweekly raise? Examine the employee’s prior biweekly paycheck and make the following observations:
- Multiply the employee’s prior biweekly paycheck by the % raise: $1,923.08 multiplied by.04 is $76.92 (biweekly raise amount)
- To the employee’s prior biweekly salary, add the biweekly raise amount: $2,000 = $76.92 + $1,923.08
You know the new salary you want the employee to receive
You can figure out how much you want the employee’s new compensation to be, but you need to know how much of an increase it will be in percentage terms.
Let’s continue with the previous example. A year’s salary for an employee is $50,000. You desire a new annual pay of $52,000 for them. You’ll use the formula above to calculate their rise %.
- To begin, figure out how much the employee’s old and new salaries differ: $2,000 is the difference between $52,000 and $50,000.
Is a rise of 2.5 percent acceptable?
A 2.5-3 percent wage increase is typical. What is the significance of 3%? Because pay increases are mostly cost-of-living adjustments based on inflation, which is around 2.5-3 percent per year. Because costs climb every year, if you don’t get a raise every year, your purchasing power is actually dwindling. However, a 3% rise may not always be a decent raise. A 3% raise won’t solve the problem for someone who is underpaid in their position.