Enter current salary and a percentage or flat dollar increase amount. New salary and total annual cost increase are calculated instantly.
Salary increases are one of the most powerful retention tools available to small business owners -- and one of the most commonly mishandled. The most prevalent mistake is giving the same percentage increase to every employee regardless of performance, seniority, or market rate. Over time, this approach compresses pay between high performers and low performers, signals to your best people that results are not rewarded, and accelerates the departure of exactly the employees you most want to keep.
A more effective approach differentiates increases by category: merit increases tied to performance, market adjustments for employees whose compensation has fallen below market rate for their role, and tenure adjustments for employees who have grown significantly in responsibility. Using this calculator to model increases individually before annual review season allows you to understand the total cost impact of your planned increases before you communicate them -- so there are no surprises in the compensation budget and no awkward conversations about revising an offer you already made.
Annual salary increase budgets in small businesses typically run 3 to 5 percent of payroll in a stable environment, with higher increases allocated to high performers and employees in high-demand roles. In a high-inflation environment, cost-of-living adjustments may push the average higher. The most important benchmark is not what percentage other companies are giving -- it is whether your total compensation package is competitive enough to retain the specific employees you need to keep. Losing a key employee who earns $75,000 per year typically costs $37,000 to $150,000 to replace when recruiting, onboarding, and lost productivity are included. A $3,750 merit increase that prevents that departure has a 10:1 to 40:1 return on investment.
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