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Salary Increment: The thing that every employed person waits for the most at the end of the year is salary increment. It is not just about money, but also recognition of hard work and motivation. But have you ever wondered how this increment is decided and how it is calculated?
Understand salary increment in simple language
Salary increment means increase in your annual income. This increase is based on your hard work and performance and is mostly stated in percentage. Many times this increment also plays a big role in your upcoming job change because the new company also pays attention to the previous increase.
How is increment decided?
Increment does not depend only on performance appraisal. Yes, whether you completed your annual target, key performance indicators (KPIs), key responsible areas (KRAs) or not, and how was your rating, these are important factors. But apart from these, many things are also important, such as:
- The state of the industry you are working in (eg. IT, banking, healthcare).
- The financial condition and profit of the company.
- The budget of your department.
- How many years you have been in the job, your qualifications and the specialty of the role.
How to calculate salary increment?
Now comes the real question, how is increment calculated? There are three common ways of doing this.
1. When the new salary is announced
Suppose your old salary was ₹50,000 and now the company has increased it to ₹60,000. The formula is:
(New salary–Old salary)÷ Old salary × 100
= (60,000 – 50,000) ÷ 50,000 × 100 = 20% increment
2. When only increment amount is mentioned
If the company said that you will get a hike of ₹10,000 and your old salary is ₹50,000, then the formula will be:
(Increment amount ÷ old salary) × 100
= 10,000 ÷ 50,000 × 100 = 20% increment
3. When stated in percentage
If the company says you have received a 20% increment and your old salary is ₹50,000, then the formula will be:
(Percentage × old salary) ÷ 100 + old salary
= (20 × 50,000) ÷ 100 + 50,000 = 10,000 + 50,000 = ₹60,000
Important terms related to salary
Gross salary: Your full CTC including all allowances and benefits.
Net salary: The amount received after all deductions (PF, tax etc.).
Take-home salary: Net salary is commonly known as take-home.
It is important for every employee to know the calculation of salary increment. This not only gives you transparency but also helps you take better decisions for your career. Along with performance, the financial condition of the company and the condition of the industry also affect your increment.
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