How to Determine Salary Increases

by Grace Ferguson

Your salary increase may come as a flat dollar amount or a percentage. In either case, the calculation method is straightforward. Things can get complicated if you are also due retroactive pay, which means the raise is effective on a prior pay period instead of only the current one. Knowing how to calculate your salary increase helps you to determine whether your employer paid it correctly.

Current Pay Period

Determine your salary for the pay period by dividing your annual salary by the number of pay periods in the year. For example, \$54,000 divided by 26 biweekly payrolls equals biweekly salary of \$2,076.92.

Add the flat amount of your increase to your old salary to get the new salary. For example, for a yearly increase of \$2,700, divide \$2,700 by 26 biweekly pay periods to get a biweekly increase of \$103.85. Add your old salary of \$2,076.92 to \$103.85 to get your new salary of \$2,180.77.

Figure a percentage amount by multiplying the percentage rate by your old salary. As an example, for a 5 percent raise, multiply \$2,076.92 by a 0.05 to arrive at biweekly increase of \$103.85.

Retroactive Pay

Calculate the difference between your old and new salary. For example, the difference between your old salary of \$2,076.92 and your new salary of \$2,180.77 comes to \$103.85.

Figure the retroactive date of the pay increase, such as one or two pay periods prior to the current one.

Multiply the difference between your old and new salary to the number of retroactive pay periods. For example, if the raise was effective on the last two payrolls, multiply \$103.85 by two to get retroactive pay of \$207.70. In addition, your current paycheck should reflect your new salary of \$2,180.77.

Compute retroactive pay if the effective date is for a specific number of days in the previous pay period, rather than for an entire pay period. In this case, your retroactive pay is the difference in your old and new daily rate. Divide your old and new salary for the pay period by the number of work days in that pay period to get your old and new daily rates. Then, subtract the old daily rate from the new daily rate to get your daily retroactive pay. To arrive at your total retroactive amount, multiply your daily retroactive pay by the number of days the raise is effective for.

Tip

• The Internal Revenue Service regards retroactive pay as supplemental wages. If the payment is made separately from your regular salary, your employer may withhold federal income tax at a flat 25 percent, as of 2013. Consult your state revenue agency for supplemental wage rates for state income tax purposes.