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Increment Policy – How to Determine Salary Increments

July 21, 2022
Increment Policy

An employee’s good performance should always be rewarded and there are so many ways to reward your employees other than payroll like bonuses, surprise trips, gift cards, and more. However, salary increment  is the most exciting reward one can offer to its employees. Salary Increment is also a way of balancing employees’ expectations through their performance. Periodic salary increments  typically also depend on a number of circumstances beyond the employee, such as market conditions, organizational policy, the overall performance of the company, etc.

However, before offering salary increments to your employees you need to have a predefined increment policy for a transparent and smoother increment. While developing an increment policy for your employees, there might be chances of some common errors. If you want to develop a policy that is error-free, this blog is the right place for you. This blog will discuss everything from definition to its basis.

What is a Salary Increment – Definition?

Salary Increments are often expressed as a percentage of an employee’s base salary. Mostly, it is the percentage of the employee’s annual salary. Increments are used by employers to increase employee salaries and to grant incentives.

Every company, be it small or big, has an increment policy that tells you the basis on which salary raises are done. These policies are often transparent in order to avoid any confusion and to incorporate a trustable culture in the organization.

On what Basis is a Salary Increment Given to the Employees?

Employees receive salaries for performing the roles and responsibilities related to their positions. The exact salary amount paid to a particular employee is dependent on many factors like market rates, employee’s qualifications, experience, competence, potential, and more.

Below are some of the reasons why a salary increment is offered  to an employee:

  • To recognize the enhanced performance and skills
  • To compensate the staff for taking on extra responsibilities
  • To appreciate the strong performance
  • To match the rates with the market standards
  • To help the employee survive the cost of living

Most of the companies offer Annual Increments to their employees based on their skills, performance, potential, and more.

Salary Increment Percentage – Way to Calculate

Calculating salary increments is an easy task. But there are several payroll challenges you may face. But if you follow the below steps to calculate your employee pay raises it will be busy.

  • Firstly, calculate the decimal value of the salary increase percent i.e., divide the salary increase by 100.
  • Multiply the decimal value by the current CTC of the employee
  • Now add the result to the current CTC of the employee
  • The result is the final incremented salary presented to the employee.

For example,

Suppose the current salary is 30,000 and you want to offer a 30% hike

  • Calculate decimal value of 30%, which is 30/100 = 0.30
  • Multiply 0.30 to current CTC i.e., 30,000*0.30 = 9000
  • Now add 9000 to current salary i.e., 30,000 + 9000 = 39,000
  • As a result, the revised pay of the employee with increment is 39,000.

How to determine salary increase?

The overall state of the economy—inflation, shifts in the cost of living, etc. Cost of living rises ought to be given top consideration when setting a budget for pay raises. To determine the pay rise, take into account the following factors:

  • The overall financial health of the employer.
  • The department’s or section’s incremental “budget.”
  • Length of employment with the company.
  • Certificates of Employment, or the fact that certain talents are in high demand and there is a chance that the employee will be paid more for them at another company.
  • Comparison of the market worth and norms for comparable positions.

Employers occasionally benchmark or alter wage rates using salary surveys from comparable companies in their market location. Most firms don’t utilize compensation surveys, but rather “pay budget” polls to compare their annual increments to those of other employers.

How to write a salary increment Letter?

So, here is a list of what you might mention in a salary increment letter.

  • Name of the employee
  • Designation of the employee
  • Message of congratulations to the employee (for their great performance)
  • Present pay and its structure
  • New pay and, if any, modifications to the pay structure
  • The month that the new salary will be credited from
  • This HR letter could also include if the increment follows remarkable performance on a particular project.
  • Gratitude for the employee’s contribution to your business

Increment Policy – An Important Requirement for the Organizations

It is indisputable that most employers work for a paycheck, regardless of what truly influences their degree of devotion. There are surely many factors that motivate workforces.

From this point forward, compensation is a crucial component of every association, and mistakes are simply unacceptable. Organizations need to have a proper increment policy in order to offer their employees a salary increment. If you are looking for a well-structured increment policy or salary increment letter format, re-designation letter, promotion letter, appraisal letter, UBS HRMS Software & payroll software can help. We can provide you with all the HR-related documents like HR letters, policies, job descriptions, and more. Get in touch to access these documents for free.

Alpesh Vaghasiya

Alpesh Vaghasiya

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