How to Calculate Salary Increase: Step-by-Step Guide (2026)

Calculating a salary increase takes two formulas. If your employer quotes a percentage, multiply your current salary by that rate to get the raise amount, then add it to your base pay. If you have two salary figures, subtract and divide to find the percentage. According to WorldatWork's 2024 Salary Budget Survey, the average U.S. salary increase budget for 2025 was 3.9% — knowing your exact number tells you where you stand.

Key Takeaways

• New salary = old salary × (1 + raise % ÷ 100). A 5% raise on $70,000 yields $73,500.
• Raise % = ((new salary − old salary) ÷ old salary) × 100.
• The U.S. average salary increase budget was 3.9% for 2025 (WorldatWork, 2024).
• Prorate mid-year raises by months remaining; compound annual raises by raising to the power of years.

The Two Core Salary Increase Formulas

Every salary increase calculation answers one of two questions:

Both formulas are two sides of the same equation. Use the first when your employer quotes a percentage. Use the second when you have two salary figures and want to compare them or confirm the math.

How to Calculate Your New Salary After a Raise

Step 1: Write Down Your Current Gross Annual Salary

Use your gross annual salary before taxes. If you're salaried, this is the figure in your offer letter or employment contract. Don't use take-home pay — the formula works on gross figures and produces a gross result.

Step 2: Confirm Your Raise Percentage

Your employer will typically state this as a percentage ("you're receiving a 5% merit increase") or as a flat dollar amount. If you were given a dollar amount and want the percentage, jump to the next section.

Step 3: Calculate the Raise Amount

Raise Amount = Old Salary × (Raise % ÷ 100)

Example: $72,000 salary × 5% raise = $72,000 × 0.05 = $3,600

Step 4: Add to Your Current Salary

New Salary = Old Salary + Raise Amount

Example: $72,000 + $3,600 = $75,600

You can shorten steps 3 and 4 into a single calculation by multiplying by (1 + raise %):

New Salary = $72,000 × 1.05 = $75,600

Both approaches give the same result. The shortcut is faster once you're comfortable with the logic.

Verification check: Divide the raise amount by the old salary. The result should equal the raise percentage as a decimal. $3,600 ÷ $72,000 = 0.05 = 5% ✓

How to Calculate Raise Percentage from Old and New Salary

If you already have both figures but not the percentage, this formula reverses the calculation.

Raise % = ((New Salary − Old Salary) ÷ Old Salary) × 100

Example: Your salary moved from $68,000 to $72,000.

($72,000 − $68,000) ÷ $68,000 × 100 = $4,000 ÷ $68,000 × 100 = 5.9%

That move represents a 5.9% salary increase.

Worth knowing: The most useful thing about the percentage formula isn't computing the number — it's comparing raises across roles and salary levels. A $4,000 raise looks identical on two offers, but at $68,000 that's 5.9% while at $100,000 it's only 4.0%. The percentage reveals the real difference. For the full formula breakdown, see how to calculate salary increase percentage.

Salary Increase Examples by Scenario

The chart below shows the dollar impact of the U.S. average 4% raise across five salary levels.

Dollar raise at the U.S. average 4% rate scales directly with base salary. Source: WorldatWork, 2024.

How to Calculate a Mid-Year Salary Increase (Prorated)

When a raise takes effect partway through the year, you won't receive the full annual bump in that payroll year. Prorate the raise by the fraction of the year remaining after the effective date.

Prorated Raise = Annual Raise Amount × (Months Remaining ÷ 12)

Example: Your $72,000 salary gets a 5% raise ($3,600/year) effective October 1. Three months remain in the calendar year.

Prorated Raise = $3,600 × (3 ÷ 12) = $3,600 × 0.25 = $900

Your paychecks increase for those final three months, adding $900 in the current year. Starting January 1, your full new salary of $75,600 applies to all pay periods.

This calculation matters when estimating your year-end W-2 income, planning a budget mid-year, or negotiating a retroactive adjustment. A raise effective July 1 means roughly half the annual increase lands in that tax year — worth knowing before you finalize any financial planning.

How Salary Increases Compound Over Multiple Years

Annual raises compound: each year's increase applies to a higher starting salary, so dollar growth accelerates even when the percentage stays constant.

Salary After N Years = Starting Salary × (1 + Annual Raise %)^N

Example: $65,000 starting salary with consistent 4% raises over five years.

The same 4% rate produces $442 more in year 5 than in year 1, purely from compounding. This is why securing a higher base salary or a larger initial raise has an outsized long-term effect — every future percentage raise builds on a bigger number.

What Counts as a Good Salary Increase?

In 2025, the average U.S. salary increase budget was 3.9% according to WorldatWork's 2024 Salary Budget Survey covering over 2,400 organizations. PayScale's 2024 Compensation Best Practices Report found merit increases averaging 4–5%.

A raise that matches or exceeds inflation preserves purchasing power. A 4% raise during a 4.5% inflation year is a 0.5% real pay cut. For context on benchmarking your raise against the cost of living, see what is a good raise percentage and raise vs. inflation.

Common Mistakes to Avoid

1. Dividing by the new salary instead of the old The formula uses the old salary as the denominator because the raise is measured relative to where your pay started. Dividing by the new salary makes the percentage appear smaller than the actual increase.

2. Mixing time periods Annual salary should be compared with annual salary. If your contract states a monthly figure, multiply by 12 before running the formula. Mixing monthly and annual numbers produces a percentage off by a factor of 12.

3. Including variable pay in base salary Salary increase formulas apply to base pay. Bonuses, commissions, and equity grants are separate compensation components. A $5,000 performance bonus is not a base salary increase and shouldn't inflate your raise percentage calculation.

4. Forgetting to prorate mid-year raises A raise effective mid-year doesn't add a full year's increment to your current-year paycheck. Calculate the prorated amount to avoid surprises when reviewing your W-2 or planning cash flow.

Use the Salary Increase Calculator

Want to skip the math?

Use the Salary Increase Calculator to enter your current salary and raise percentage, then see your new annual salary, monthly pay, and biweekly paycheck in seconds.

Frequently Asked Questions

How do I calculate a 5% salary increase?

Multiply your current salary by 0.05 to find the raise amount, then add it to your current salary. Example: 5% of $70,000 = $3,500 raise; new salary = $73,500. A 5% raise is above the U.S. average salary increase budget of 3.9% for 2025 (WorldatWork, 2024), placing it in the above-average merit category.

How do I calculate salary increase percentage from two salaries?

Subtract the old salary from the new salary, divide by the old salary, and multiply by 100. Formula: ((New − Old) ÷ Old) × 100. Moving from $65,000 to $68,900 gives ($3,900 ÷ $65,000) × 100 = 6%. See how to calculate salary increase percentage for more examples.

How do I calculate a mid-year salary increase?

Multiply the annual raise amount by the fraction of the year remaining. A $3,600 annual raise effective October 1 adds $900 in that calendar year (3 months ÷ 12 × $3,600). The full raise amount applies from January 1 of the following year.

How do I calculate monthly pay after a salary increase?

Divide your new annual salary by 12. Example: $75,600 new salary ÷ 12 = $6,300/month gross. For biweekly pay, divide by 26 instead. See biweekly pay after raise for a full breakdown by pay period.

What is a typical salary increase in 2025?

According to WorldatWork's 2024 Salary Budget Survey, the median projected salary increase for 2025 was 3.9% across more than 2,400 U.S. organizations. PayScale's 2024 Compensation Best Practices Report found merit increases averaging 4–5%. Figures vary by industry, seniority level, and company performance.

Conclusion

Two formulas cover every salary increase scenario: multiply your old salary by (1 + raise %) to find your new pay, or divide the raise amount by your old salary and multiply by 100 to get the percentage. The harder question is whether that number keeps pace with the 3.9% U.S. average and your actual cost of living.

Use the Salary Increase Calculator to run your numbers instantly, or read how to ask for a raise for strategies to prepare for your next review.

Sources

• WorldatWork, 2024 Salary Budget Survey, retrieved 2026-07-06, https://worldatwork.org/resources/research
• PayScale, 2024 Compensation Best Practices Report, retrieved 2026-07-06, https://www.payscale.com/research-and-insights/cbpr/