How to Calculate a Pay Raise Percentage

The two formulas

From old and new pay to a percentage:

1. Subtract the old pay from the new pay. That is the raise in dollars.
2. Divide the raise by the old pay.
3. Multiply by 100.

$48,000.00 to $51,000.00 is a $3,000.00 raise, and $3,000.00 ÷ $48,000.00 × 100 = 6.25%. An hourly raise from $18.00 to $19.25 is $1.25, or 6.94%.

From old pay and a percentage to new pay:

1. Divide the percentage by 100 (3.5% becomes 0.035).
2. Multiply the old pay by 1 plus that number.
3. Round to the cent.

$24.50 an hour with a 3.5% raise is $25.3575, which rounds to $25.36, a raise of $0.86 an hour.

Always divide by the old pay. Dividing by the new pay gives a smaller number that describes something else: how much of the new pay the raise makes up.

Hourly and yearly: where the cents go

Payroll converts hourly pay to yearly with 2,080 hours, the 40 hours × 52 weeks convention OPM describes. That makes a $24.50 rate $50,960.00 a year. Now apply the 3.5% raise two ways:

The $5.20 gap is rounding, not a different raise. An hourly employee is paid the rounded rate, so the second row is the one that shows up on paychecks. A salaried employee is paid the salary, so the first row is the real one, and the hourly figure is only a way of describing it.

If your salary is quoted by the month, convert it the way the Department of Labor’s overtime rules do, × 12 ÷ 52 for a weekly figure (29 CFR 778.113), before comparing it with an hourly offer. The hourly to salary guide covers the conversions and why 2,080 is a convention rather than a count of real hours.

A raise in cents per hour, as a yearly number

Hourly raises are often announced in cents, which makes them easy to underrate. Multiply the hourly raise by your yearly hours to see it in dollars. At the 2,080-hour convention, the engine gives:

A flat raise in dollars is a different percentage for each person who gets it. The same $1.00 an hour is a 5.56% raise on $18.00 and a 4.08% raise on $24.50. When an employer gives everyone the same dollar raise, the percentage is largest for the lowest rates.

If you work fewer than 40 hours a week, or your holidays are unpaid, use your real hours instead of 2,080 for the yearly figure.

Percentages don’t add

Two 5% raises in a row are not a 10% raise:

The second raise is 5% of a bigger number. (The engine rounds each step to the cent, as payroll would.)

The same effect runs in reverse. A cut from $51,000.00 to $48,000.00 is −5.88%, but getting back from $48,000.00 to $51,000.00 takes a 6.25% raise. A cut and a later raise of the same percentage do not leave you where you started.

What a raise does to overtime

Under the Fair Labor Standards Act, overtime is paid at not less than 1.5 times your regular rate for hours over 40 in a workweek (Fact Sheet #23), so a raise lifts overtime pay along with straight time. For a 45-hour week, the engine gives:

The week’s gross rises 3.51%, a hair more than the 3.5% announced, because the new rate was rounded up to the cent. If a bonus or shift differential is part of your pay, it also feeds into the regular rate your overtime is based on; the regular rate guide shows how.

Your raise against inflation

A raise that is smaller than the rise in prices buys less than last year’s pay did. The Bureau of Labor Statistics publishes the Consumer Price Index (CPI), and its own FAQ notes the CPI is used to adjust hourly and weekly earnings for price changes. A “real” raise compares the two growth rates, and like raises, they don’t simply subtract.

Here is the method with made-up numbers (3% is an example, not a published CPI figure):

1. Grow $100.00 by your raise: 3.5% gives $103.50.
2. Grow $100.00 by the price change: 3% gives $103.00.
3. Compare the two: $103.00 to $103.50 is a 0.49% gain in buying power, slightly less than subtracting 3% from 3.5% suggests.

For a real comparison, look up the 12-month change in the CPI for the period your raise covers on the BLS site. Its FAQ calls the CPI-U the broadest index and notes local indexes are more volatile than national or regional ones.

Next step

Use the pay raise calculator to go from a percentage to a new rate or from a new rate to a percentage, hourly or yearly, with the rounding shown. If the raise changes how you compare an hourly job with a salaried one, the hourly to salary calculator does that conversion.