A school in Jaipur has 30 staff and a salary bill of ₹1,23,60,000 a year. Every March the principal and the trustees have the same argument: how much to give, and whether everyone should get the same. This year they want a number they can defend to the staff room and to the bank.
Here's how to get to one, with the school's own figures worked through our payroll engine.
How much increment to give employees: start with one budget
Decide the total first and split it second. Picking a percentage for each person and adding them up afterwards is how a raise round ends up costing half as much again as anybody planned.
A budget has two parts:
- A floor for everybody that roughly covers the rise in prices over the year, so nobody's pay falls in real terms. Look up the latest consumer price inflation figure before you set it.
- A merit pool on top, for the people you most want to keep.
At 7%, the school's budget is ₹8,65,200 a year, about ₹72,100 a month.
Annual salary increment percentage: what's normal
Aon's annual salary survey of large Indian employers put the average raise at 8.9% in 2025 and projects 9.1% for 2026. Nobody publishes a reliable figure for small businesses. Most can't match the big-company number and make up for it in other ways: flexible hours, a faster route to a senior role, an owner who knows everyone by name. Don't copy the survey number. Copy the method: a floor, a pool, and a rule for who gets what.
Increment budget for small business, split by merit
The school splits its staff into three groups in every role:
| Group | Share of staff | Raise |
|---|
| Top third | 33% | 10% |
|---|
| Middle half | 50% | 6% |
|---|
| The rest | 17% | 3% |
|---|
That split costs ₹8,44,600 a year against a budget of ₹8,65,200, so it fits, with ₹20,600 left over for the odd correction. The first version they tried gave the middle group 7%, and it ran over. When that happens, change the percentages, not the budget.
What 8% does to in-hand pay
A teacher on ₹3,60,000 gets 8%. Her cost to the school goes up by ₹2,400 a month. Her take-home goes up by less, because a slice of it goes into the gratuity provision. PF doesn't move, because her Basic was already above the ₹15,000 ceiling:
| Before | After 8% |
|---|
| Annual CTC | ₹3,60,000 | ₹3,88,800 |
|---|
| Gross a month | ₹27,479 | ₹29,821 |
|---|
| Employee PF | ₹1,800 | ₹1,800 |
|---|
| In hand, new regime | ₹25,679 | ₹28,021 |
|---|
₹2,400more CTC a month
₹2,342more in her bank account
Tell staff the in-hand figure as well as the percentage. "8%" sounds like one thing, and a first payslip that's ₹2,342 higher instead of ₹2,400 feels like another. Our salary calculator gives the in-hand figure for any CTC, and CTC to in-hand salary explains the gap.
Merit increase vs flat raise
Some owners give everyone the same rupee amount instead of a percentage. Here's 8% against a flat ₹2,000 a month for each of the school's roles:
| Role | 8% a month | Flat raise | Flat as a % |
|---|
| Teacher | ₹2,400 | ₹2,000 | 6.7% |
|---|
| Senior teacher | ₹4,000 | ₹2,000 | 4% |
|---|
| Office staff | ₹1,800 | ₹2,000 | 8.9% |
|---|
A flat raise helps the lowest-paid most and squeezes the gap between junior and senior staff. Do it once and it's kind. Do it every year and a senior teacher earns barely more than a new one, and one day she leaves over it. Most schools and shops end up somewhere in between: a flat floor for the lowest-paid, a percentage for everybody else.
Salary hike and the ESI limit
The office staff are on ₹2,70,000, a gross of ₹19,960 a month, so ESI covers them. After 8%, their gross is ₹22,258, above the ₹21,000 limit:
- They stop paying ₹150 a month of ESI, so their take-home rises more than the raise alone would give.
- The school stops paying ₹649 a month of employer ESI.
- They lose ESI's medical cover, after the current contribution period ends. Tell them before the letter, not after.
Salary revision process, step by step
- Fix the budget with whoever signs the cheques.
- Rate everybody the same way, on the same form, before any number is discussed.
- Apply the split, and check the total against the budget.
- Pick one effective date, usually 1 April. If it's already behind you, the difference for the months already paid is owed as arrears.
- Issue each person a letter with the old and new CTC and the new monthly gross. Our increment letter generator makes one in a minute.
- Update each salary structure before the first payroll after the effective date, not after it.
When to give the increment, and to whom
April is the easy month. It starts the tax year, so the new salary and the TDS on it begin together, and the whole team moves on one date. A raise in October means reworking six months of tax for everyone who got one, and a payslip in November that looks wrong to anybody who doesn't know why.
A few people need a decision of their own:
- Anyone still on probation. Most businesses wait until confirmation, and say so in the offer letter.
- Anyone who has resigned. A raise during the notice period makes the full and final settlement bigger for nobody's benefit. Decide the rule once and write it down.
- Anyone hired in the last three months. Their offer was set at this year's market rate already. A partial raise, or none, is normal.
Then sit with each person for ten minutes. Give the new monthly gross and the in-hand figure, say what the raise is for, and say what would earn a bigger one next year. The letter confirms the conversation. It shouldn't replace it.
