How to Calculate a Salary Raise: Formula & Example

What a salary raise actually is

A salary raise is extra pay added to your current annual salary, usually as a percentage of what you already earn. A 5% raise does not mean $5 more — it means your salary grows by 5% of its current value. That is why the same percentage is worth different amounts at different salaries: 5% of $65,000 is $3,250 a year, while 5% of $100,000 is $5,000 a year. Every figure here is checked against the salary raise calculator.

The salary raise formula

The calculation rests on three short formulas. First, the raise in dollars per year is your current salary times the raise percentage divided by 100. Second, your new salary is your current salary plus that raise. Third, the new hourly rate is the new salary divided by the hours you work in a year. Remember one line: raise in dollars = current salary × raise percent ÷ 100.

Step 1: Write down your current salary

Start with the salary you earn now, before the raise — your base salary, not your total pay. Use the annual figure from your pay stub, before tax, and leave out overtime, bonuses, and commissions: a raise normally applies to the base salary only. In this guide the current salary is $65,000 a year. If you are paid by the hour, multiply your rate by your weekly hours and by 52 first: $31.25 an hour at 40 hours a week is $65,000 a year.

Step 2: Find the raise percentage (or the raise in dollars)

Raises are usually stated as a percentage, and this guide uses 5%. If you were told a dollar amount instead, for example $3,250 a year, skip to step 4. If you were told a target salary instead, for example $70,000, work out the percentage: subtract your current salary from the target, divide by your current salary, and multiply by 100. On $65,000, reaching $70,000 needs a raise of 7.69% (the exact figure is 7.6923%, and 7.69% gives a new salary of $69,998.50).

Step 3: Work out the raise in dollars per year

Turn the percentage into dollars: multiply your current salary by the raise percentage and divide by 100. On the example, $65,000 × 5 ÷ 100 is $3,250 a year. That is the raise itself — the extra money the raise adds over a full year, before tax — and every other figure comes from it: divide it by 12 for the monthly increase, add it to your salary for the new annual pay.

Step 4: Add it to your salary for the new annual pay

Add the raise to your current salary: $65,000 plus $3,250 is $68,250 a year. You can also get the same answer by multiplying your salary by 1 plus the raise as a decimal: $65,000 × 1.05 is $68,250. This new salary is the figure your next raise will be calculated from, so raises compound — a second 5% raise is 5% of $68,250, not 5% of $65,000.

Step 5: Divide by 12 and by 26 for the monthly and biweekly pay

An annual raise of $3,250 sounds large until you break it into paychecks. Divide the raise by 12 for the monthly increase: $3,250 ÷ 12 is $270.83 a month. The new monthly pay is $68,250 ÷ 12, which is $5,687.50 a month, up from $5,416.67. Paid every two weeks? Divide by 26: the new biweekly paycheck is $68,250 ÷ 26, which is $2,625.00, up from $2,500.00.

Step 6: Divide by your yearly hours for the new hourly rate

A year of full-time work is 40 hours a week for 52 weeks, which is 2,080 hours. Divide the new salary by those hours: $68,250 ÷ 2,080 is $32.81 an hour, up from $31.25 an hour ($65,000 ÷ 2,080). At 35 hours a week the year is 1,820 hours, and the same salary is $37.50 an hour. It assumes the same hours every week for all 52 weeks, so treat it as what your salary is worth per hour.

Worked example: a 5% raise on $65,000

Put the six steps together. Current salary $65,000, raise 5%: the raise is $65,000 × 5 ÷ 100 = $3,250 a year; the new salary is $65,000 + $3,250 = $68,250; the monthly increase is $3,250 ÷ 12 = $270.83 and the new monthly pay is $5,687.50; the new biweekly paycheck is $68,250 ÷ 26 = $2,625.00; the new hourly rate is $68,250 ÷ 2,080 = $32.81, up from $31.25. Note that totals are computed from unrounded values, so rounded parts may differ by a cent from their rounded sum. On $100,000 at 5% the same steps give a $5,000 raise, a $105,000 salary, and $416.67 a month.

Working backwards: what raise do you need?

The calculation also runs in reverse — the version most people need when negotiating. To reach a target salary, subtract your current salary from the target, divide by your current salary, and multiply by 100. On $65,000, a $70,000 target needs a 7.69% raise (exact 7.6923%; 7.69% gives $69,998.50). To gain a fixed amount a year, divide that amount by your salary and multiply by 100: a $10,000-a-year increase on $65,000 needs a 15.38% raise (exact 15.3846%; 15.38% gives $9,997.00). The rounded percentage always pays slightly short of the target, so check it before you agree.

What the calculation leaves out

The calculation leaves out three real things. First, taxes: the raise is shown before tax, so the take-home increase is smaller than $270.83 a month, because the extra pay is taxed at your marginal rate. Second, benefits and bonuses: the raise applies to your base salary only, so overtime, bonuses, and commissions do not grow with it. Third, a raise percentage is not the same as a cost-of-living adjustment: the adjustment only keeps your pay level with rising prices, while a raise is meant to increase your real pay, so a 5% raise when prices rise 3% is only about a 2% real increase.

What to do next

Run your own salary and raise through the salary raise calculator and read the answers in order: new salary, annual increase, monthly increase, and new hourly rate. Then run the reverse: type in the salary you want to reach, and see the percentage it takes. Finally, check what the raise is worth after tax with the take-home pay calculator.