What Is a 3% Raise and How Do You Calculate It?

A 3% raise means an increase of three percent of an employee’s current gross annual salary or hourly wage. This pay increase is a common adjustment employers implement.

Calculating a 3% Raise

Calculating a 3% raise involves a straightforward mathematical process, whether applied to an annual salary or an hourly wage.

For an employee with an annual salary, multiply the current annual salary by 0.03. For instance, if an employee earns $50,000 annually, a 3% raise would be $1,500 ($50,000 x 0.03). This $1,500 is then added to the original salary, resulting in a new annual salary of $51,500.

For an hourly wage earner, the process is similar. If an employee currently earns $20 per hour, a 3% raise is $0.60 ($20 x 0.03). Adding this to the current hourly wage yields a new hourly rate of $20.60.

Factors Influencing Raise Percentages

Several factors typically influence the percentage of a raise an employee receives, with 3% often being a common figure. These considerations help employers balance their financial capabilities with employee compensation.

Individual performance is a significant determinant, as merit-based raises often reward an employee’s contributions and achievements. These increases can range from 1% to 5% depending on performance evaluations and industry norms. The overall financial health and profitability of the company also play a considerable role, as a strong financial position allows employers more flexibility in offering raises.

Market rates for similar roles in the same industry and geographic area are another important factor. Companies frequently conduct salary surveys to ensure their compensation packages remain competitive, aiming to attract and retain talent. Cost of living adjustments (COLA) are also considered, which are designed to help employee wages keep pace with inflation and maintain purchasing power. While not legally mandated for most private sector employers, COLAs help employees manage rising expenses for necessities like housing, food, and healthcare.

Impact on Your Take-Home Pay

While a 3% raise increases your gross pay, the actual increase in your take-home (net) pay will be less due to various deductions.

Gross pay is the total amount earned before any deductions are applied, whereas take-home pay is the amount received after all withholdings. These deductions typically include federal income taxes, state and local income taxes (where applicable), Social Security, Medicare, and contributions to benefits such as health insurance or retirement plans. Federal income taxes are applied through a progressive tax system, meaning different portions of income are taxed at varying rates, which can increase as income rises.

Social Security tax is currently 6.2% of gross wages up to an annual wage base limit, which is $176,100 for 2025. Medicare tax is 1.45% of all covered wages, with no wage base limit. An additional 0.9% Medicare tax applies to wages exceeding $200,000. As your gross pay increases with a raise, the amounts withheld for these taxes and other deductions will also generally increase. Consequently, a 3% gross raise will result in a smaller percentage increase in your net take-home pay. For example, a $1,500 annual gross raise might translate to a few hundred dollars more in net pay over the year, after accounting for these deductions.