Enter the employee’s experience level and the industry average salary for that experience level into the calculator, then divide the result by the number of working hours per week to determine the reasonable salary.
Reasonable Salary Formula
The following formula is used to calculate a reasonable salary:
RS = (E * p) / h
Variables:
- RS is the reasonable salary
- E is the employee’s experience level
- p is the industry average salary for the employee’s experience level
- h is the number of working hours per week
To calculate the reasonable salary, multiply the employee’s experience level by the industry average salary for that experience level, then divide the result by the number of working hours per week.
What is a Reasonable Salary?
A reasonable salary is compensation that is commensurate with the skills, experience, and qualifications that an employee brings to a job. It is a fair and justifiable amount that is in line with the industry standards and the cost of living in the area where the job is located. A reasonable salary should also reflect the level of responsibility and the amount of work required in the job. It should be enough to cover an employee’s basic needs and provide some level of comfort, while also taking into account the financial capabilities of the employer. In addition, a reasonable salary should also include benefits and allowances and should be regularly reviewed and adjusted to keep up with inflation and changes in the market.
How to Calculate Reasonable Salary?
The following steps outline how to calculate a Reasonable Salary:
- First, determine the total revenue of the company ($).
- Next, calculate the total expenses of the company ($).
- Next, subtract the total expenses from the total revenue to find the net profit ($).
- Next, determine the percentage of net profit that is reasonable to allocate as a salary (%).
- Finally, multiply the net profit by the percentage to calculate the reasonable salary ($).
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem:
Use the following variables as an example problem to test your knowledge:
Total revenue ($) = 500,000
Total expenses ($) = 350,000
Percentage of net profit allocated as a salary (%) = 30%