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Pay Rise Calculator — Real Terms

What a raise is worth once inflation has taken its share.

Inputs
$
3%
3.5%
hours
New salary
53,560.00$
Real cutReal riseStrong

Slight cut

Increase
1,560.00 a year$
Per month, before tax
130.00$
New hourly rate
25.75$
Real change after inflation
-0.48%
What it is worth in today money
51,748.79$
Rise needed just to stand still
3.5% — 53,820.00
Verdict
a real-terms pay cut
Real change = (1 + rise) ÷ (1 + inflation) − 1

Real terms divide by inflation rather than subtracting it, which is why a 3% rise against 3.5% inflation is −0.48% and not −0.5%. Gross figures throughout; tax bands can take a larger share of a rise than of the original salary.

Every tool runs entirely in your browser. Your files are never uploaded to a server.

A rise is only an increase if it beats inflation. Real change is (1 + rise) divided by (1 + inflation), minus one — so a 3% rise against 3.5% inflation is a real-terms cut of 0.48%, not 0.5%.

How to use Pay Rise Calculator

  1. Enter your salary and the rise offered. Use the gross figure, before tax and deductions.
  2. Set inflation over the same period. Use the rate covering the time since your last rise, not the latest monthly headline figure.
  3. Read the real change. The needle shows whether the offer is an increase, flat, or a cut once prices are accounted for.

About pay rises

A pay rise is a proportional change and so is inflation, which means comparing them by subtraction is an approximation rather than arithmetic. The correct calculation divides one by the other: a salary multiplied by 1.03 while prices multiply by 1.035 leaves purchasing power at 1.03 divided by 1.035, or 0.9952 — a real cut of 0.48 percent rather than the 0.5 that subtraction suggests. At low rates the difference is small enough to ignore in conversation and large enough to matter in a negotiation; at high rates it stops being negligible entirely. The more consequential point is what the comparison reveals. Through a period of elevated inflation, an employer offering a rise below the inflation rate is reducing real pay while sending a letter that describes an increase, and both statements are true. That is why the figure worth quoting in a review is the real one, and why the rate needed simply to stand still is shown here alongside the offer. Two further effects work against the headline number. Tax bands are not always adjusted in line with prices, so a nominal rise can move part of your income into a higher band and deliver a smaller percentage increase in take-home than in gross pay. And a rise compounds from a base that has already fallen in real terms, so several consecutive below-inflation years leave a gap that a single matching year does not close.

Frequently asked questions

Is a 3% pay rise good?
Only relative to inflation. Against 2% inflation it is a real increase of just under 1%; against 3.5% it is a real cut of 0.48%. The number on its own carries no information about whether you are better off.
Why divide by inflation instead of subtracting it?
Because both are proportional changes applied to different bases. Subtracting is a close approximation at low rates and drifts as they rise — at 10% and 8% the true real change is 1.85%, not 2%.
What rise do I need just to stand still?
Exactly the rate of inflation over the same period. Anything below it is a reduction in what your salary buys, however it is described in the letter.
Does tax change the answer?
It can reduce what you keep, since a rise can push part of your income into a higher band, so the take-home increase is often a smaller percentage than the gross one. All figures here are gross.
Which inflation figure should I use?
The one covering the period since your last rise, rather than the latest month. A single month annualised is volatile, and the relevant comparison is what prices did across the whole time your pay was unchanged.

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