Pay Raise Calculator

The raise you got and the raise you kept

Your manager says twelve percent and it sounds like a good day. Which it might be. But twelve percent of what, arriving how often, and measured against what everything costs now?

This calculator handles the first two of those. Tell it what you earn, in whatever unit you happen to think in, and what percentage you have been offered, and it shows you the new figure four different ways.

The third question is the one that decides whether the raise was real, and it is not a field in any calculator. There is a section on it further down, because it deserves one.

Why it shows you four numbers

Hourly, weekly, monthly, annually. The same raise, expressed four ways.

That is not padding. People negotiate in one unit and live in another, and the mismatch is where raises get misjudged in both directions.

A raise quoted as a modest sounding hourly bump looks different once you see the annual figure. A raise quoted annually looks different once you see what it actually adds to a month. And if you are comparing a salaried offer against contract work, you cannot do it at all until both are in the same unit.

So the tool converts once and shows you all four, and you read whichever row matches how you actually think about money.

How your pay gets converted

Everything is turned into an hourly rate first, then the raise is applied, then it is expanded back out. Which is why the hours per week box matters even if you are salaried and never think in hours.

Two constants there, and they agree with each other. A month is treated as 4.333333 weeks, which is 13 divided by 3, and a year as 52 weeks. Multiply 4.333333 by 12 and you land exactly on 52, so nothing drifts as you move between the rows.

Strictly, a year is a shade over 52 weeks, about 52.18 once leap years are averaged in. Using a clean 52 makes the four figures internally consistent, which is what you want from a comparison tool, at the cost of about a third of a percent against a calendar-exact year.

Worth knowing that our overtime calculator makes the other choice and uses 4.348125 weeks per month, the calendar-exact figure. So monthly totals from the two tools will differ slightly. Neither is wrong, they are answering slightly different questions.

A twelve percent raise, followed through

Say you work 40 hours a week, earn $60,000 a month, and have been offered 12 percent.

First it finds your hourly rate. Forty hours times 4.333333 weeks is 173.33 hours a month, and $60,000 divided by that is $346.15 an hour.

Then the raise. Twelve percent of $346.15 is $41.54, so the new hourly rate is $387.69.

Then it expands back out:

Check the monthly row against the obvious shortcut: $60,000 times 1.12 is $67,200. It agrees, which tells you the round trip through hourly and back has not lost anything.

The annual row is the one worth sitting with. Twelve percent on a monthly wage sounds like an extra $7,200 a month, which it is. Over a year that is $86,400, and that is the number to have in your head when someone describes the raise as modest.

The number that decides whether it was a raise at all

Everything above is nominal. It tells you what the payslip will say, which is genuinely useful and also not the whole story.

What you actually care about is whether you can buy more than you could last year. And prices moved too.

The rough version everyone uses is to subtract inflation from the raise. Twelve percent minus six percent inflation is six percent better off. That is close enough for a conversation and slightly wrong.

The exact version divides rather than subtracts:

Real increase = [ (1 + raise) / (1 + inflation) - 1 ] × 100

Twelve percent against six percent inflation gives 1.12 divided by 1.06, minus 1, which is 5.66 percent. Not six. The subtraction method flatters you a little, and the gap widens as both numbers get bigger.

Which puts the whole thing in proportion:

Read the middle rows carefully. A four percent raise in a six percent year is a pay cut wearing a nicer suit. It goes up on the payslip and down in the shop.

So the first thing to find out before any pay conversation is what inflation has actually been since your last review. Our real rate of return calculator does that division for you, and our inflation calculator will tell you what your old salary needs to be today just to stand still.

Small raises, long careers

One more thing the four rows do not show, because it happens over years rather than months.

Raises compound. Next year's percentage is applied to this year's number, which already included last year's raise. So the difference between negotiating well once and negotiating well every time is not additive, it multiplies.

Take our $60,000. Ten years of five percent raises leaves you around $97,700 a month. Ten years of eight percent leaves you around $1,29,500. Three percentage points a year, compounded over a decade, is a gap of more than thirty thousand a month.

Which is also the argument for caring about the base rather than the percentage. A raise applied to a low starting salary compounds from a low base forever. Getting the starting number right once is worth more than several good percentages later, and it is the part people negotiate least.

If you want to see that compounding properly, feed the raise percentage into our CAGR calculator as a growth rate over the number of years you have in mind.

Questions people ask

I am salaried. Why does it want hours per week?

Because everything is converted to an hourly rate internally before the raise is applied. Enter your contracted hours, typically 40 or 48. The monthly and annual rows come out the same regardless, so long as you are consistent.

Does it account for inflation?

No, every figure is nominal. Work out the real increase by dividing one plus your raise by one plus inflation, or use the real rate of return calculator.

Is this before or after tax?

Before. It applies a percentage to the pay figure you enter, so if you enter gross the answers are gross. Since a raise can move you across a tax band, take-home rarely rises by the same percentage as gross pay.

I was offered a fixed amount, not a percentage.

Divide the increase by your current pay and multiply by 100 to get the percentage, then enter that. An extra $7,200 on $60,000 is 12 percent.

Why does the monthly figure differ from the overtime calculator?

Different weeks-per-month constants. This tool uses 4.333333, which keeps the four rows internally consistent at 52 weeks a year. The overtime calculator uses 4.348125, the calendar-exact figure. The gap is about a third of a percent.

Can I use it for a pay cut?

Not directly, the raise percentage has to be above zero. Work out the reduced figure by hand and enter that as your pay instead.

References

A note on the sources. The distinction between a nominal increase and a real one, and the reason a raise below inflation leaves you worse off, rests on how price change is measured, and the US Bureau of Labor Statistics documents both the measurement and the gap between pay growth and productivity growth over time. The compounding arithmetic that makes a percentage point of annual raise worth so much across a career is the same compound interest relationship defined by the Securities and Exchange Commission's investor education office.

1. U.S. Bureau of Labor Statistics, Understanding the labor productivity and compensation gap, Beyond the Numbers, on measuring real compensation and the choice of deflator when adjusting pay for price change. https://www.bls.gov/opub/btn/volume-6/understanding-the-labor-productivity-and-compensation-gap.htm
2. U.S. Securities and Exchange Commission, Office of Investor Education and Advocacy, Compound Interest, Investor.gov glossary, on growth applied repeatedly to an already increased base. https://www.investor.gov/introduction-investing/investing-basics/glossary/compound-interest
3. U.S. Department of Labor, Wage and Hour Division, Fact Sheet #56A: Overview of the Regular Rate of Pay Under the Fair Labor Standards Act, on converting between salary and hourly rates by dividing total pay by hours actually worked. https://www.dol.gov/agencies/whd/fact-sheets/56a-regular-rate