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Pay rise calculator: the real cost of a raise (with on-costs)
A 5% raise costs more than 5% of salary once employer contributions and benefits are added. Use this before budget conversations so the numbers are right.
What are on-costs?
Costs an employer pays on top of salary: pension or provident fund contributions (such as CPF in Singapore or EPF in Malaysia), payroll taxes, insurance and benefits. The right percentage depends on your country and company. Check with payroll.
Comparing a raise with replacing someone
If someone leaves over pay, the cost of replacing them is usually far higher than the raise. Try the staff turnover cost calculator to compare.
A worked example: one person
Take a salary of 55,000 and a 5% raise. The extra salary is 2,750 a year, or about 229 a month, so the new salary is 57,750. With employer on-costs of 15%, the raise costs the company 2,750 × 1.15 = 3,162.50 a year.
The difference matters when the budget is tight. If you plan around 2,750, you are about 412 a year short for this one person.
A worked example: a team
Eight people on 55,000 each get a 3% raise. Each raise is 1,650 a year before on-costs, so the team total is 13,200. With 15% on-costs the real annual cost is 15,180. Put the second number in the budget, and tell finance whether the figure is for a full year or only the months left in this one.
What the calculator does not decide
- Who gets a raise. That depends on performance, the role’s pay range, the market and fairness inside the team.
- Whether it is enough. A 3% raise can still be a pay cut in real terms if living costs rise faster, and a good employee may notice.
- Timing. A raise that starts in the middle of the year costs part of the yearly figure; one that starts on 1 January costs all of it.
- Knock-on effects. Pay-linked items such as bonus targets, overtime rates or provident fund contributions can rise with salary. Ask payroll which ones apply.
Common mistakes when budgeting a raise
- Using last year’s salary figures. People get raises and leave during the year, so refresh the list before you calculate.
- Forgetting to include promotions and market adjustments, which are often larger than the annual percentage.
- Giving everyone the same percentage and then finding the lowest-paid people fall furthest behind the market.
- Treating the raise as a one-off. It repeats every year and is the base for the next increase.
Before you have the pay conversation
- Know the number you can offer and the reason behind it, in one sentence.
- Lead with the decision, then the reason, then what happens next.
- If the answer is no or not yet, say what would change it and when you will revisit it.
- Put it in writing the same day, with the date it takes effect.
Frequently asked questions
Is the pay rise percentage before or after tax?
Before tax. The calculator shows the employer’s cost, not the employee’s take-home pay.
What on-cost percentage should I use?
Ask payroll. In many countries it is somewhere between 10% and 30% of salary, but it varies with local rules and benefits.
Do on-costs apply to the whole salary or only to the raise?
This calculator applies them to the raise only, because that is the extra cost. Contributions that are a percentage of wages, such as the employer share of CPF in Singapore or EPF in Malaysia, rise by the same percentage when pay rises.
Is a percentage or a fixed amount fairer?
A percentage keeps the gaps between people the same; a fixed amount helps lower-paid staff more. Some teams use a percentage for the budget and adjust individual amounts for fairness. Whatever you choose, be ready to explain it.
How do I show the cost of a raise to my manager?
Give the new salary, the extra cost per year including on-costs, the number of months it will cost this year, and what you expect in return, such as taking on a bigger role or reducing the risk of a resignation.