What
does the salary calculator do?
Step 1: Gross >> Net
Step 2: Net >>
Spendable
Step
3: Cost of living calculation
Step 4: Spendable >> Adjusted spendable
Step 5: Adjusted spendable >> Destination spendable
Step 6: Spendable
>> Net
Step 7: Net >> Gross
Can I save my
calculations?
What does
the salary calculator do?
The salary calculator
works out an employee's spendable income (gross salary
minus tax and social security minus housing and
savings costs) in the base city and then applies the
cost-of-living index to find out what his gross salary
in the destination city should be. A user simply needs
to choose the base city and the destination city from
the dropdown boxes (which will contain every city
which you have paid to access), enter the gross income
in the base city in the local currency of that city,
enter the marital status of the employee in question,
and then click on the Calculate button.
The steps taken by the
salary calculator to reach a gross salary in the
destination city's currency are shown in the
customisation box below the calculator. Each of these
steps can be modified by the user to suit the
individual and company concerned. In diagrammatic
form, these steps look like this:
|
Step |
Action |
Which city? |
| 1 |
Gross
>> Net |
Base
city |
| 2 |
Net
>> Spendable |
Base
city |
| 3 |
Cost
of living calculation |
Base
/ Destination |
| 4 |
Spendable >> Adjusted spendable |
Base
/ Destination |
| 5 |
Adjusted spendable >> Destination spendable |
Base
/ Destination |
| 6 |
Spendable >> Net |
Destination city |
| 7 |
Net
>> Gross |
Destination city |
Step 1: Gross >> Net
On the basis of the
base city gross income and marital status details
entered by the user, the calculator will use the EIU's
disposable income table for the city in question to
find out what that person's take-home pay is. The
calculator shows what percentage of gross income is
taken home after tax and social security payments have
been deducted. Although every effort is made to keep
the disposable income tables current, if you know that
this percentage figure needs to be adjusted, you can
overwrite it and hit the Recalculate button to redo
the sums. Please note that the EIU Worldwide Cost of
Living site does not have disposable income tables for
every city. If you get a message to this effect, you
will need to enter a percentage figure yourself.
Step 2: Net >>
Spendable
The calculator now
knows the employee's net salary. However, net salary
is not the same thing as spendable income, which is
the figure to which the cost-of-living index applies.
To reach the level of spendable income, the computer
subtracts the cost of housing and savings from net
salary. As a default, the computer applies the
so-called 40% rule, a standard assumption that 40% of
a person's net income will go towards housing and
savings. The computer applies a default ratio between
housing and savings of 3:1. Each of these values can
be overwritten: just click on the Recalculate button
to do the sums again. Having subtracted the housing
and savings costs from net salary, the calculator has
now computed a value for spendable income in local
currency in the base city.
Step
3: Cost of living calculation
The calculator now
needs to work out a cost-of-living adjustment factor
which can be applied to the spendable income figure in
the base city. This adjustment factor is reached by
taking the cost-of-living index number for the
destination city against the base city, dividing it by
100 and then subtracting 1. So if the index number was
120, the adjustment factor would be 0.2. The
calculator now multiplies the spendable income level
in the base city by the cost-of-living adjustment
factor to come up with a cost-of-living allowance.
The calculator uses the
mean cost-of-living index as a default but you can
choose to use the high index if you so desire. Please
note that if the calculator is being used to compare
cities whose indices you have just customised on the
indices page, the tool will automatically use the
customised index number.
Step 4: Spendable >> Adjusted spendable
Having computed the
cost-of-living allowance, the calculator now adds this
figure to the spendable income level calculated in
Step 2. At this point the calculator also adds in the
value of any hardship and other allowances. The
calculator's default assumption is that there are no
such additional allowances and leaves this field
blank. If it is your company's policy to offer a
hardship allowance for the destination city in
question, just enter the appropriate figure in the
local currency of the base city.
Step 5: Adjusted spendable >> Destination spendable
The adjusted spendable
income level is still in the local currency of the
base city. The calculator now needs to convert this
figure into the local currency of the destination
city. It does so by first converting the base-city
figure into US dollars and then converting from US
dollars into the destination-city currency. The
calculator will use the survey-date exchange rates as
a default, but you can also choose to use up-to-date
exchange rates or to input your own custom exchange
rates. Just click on the Recalculate button to redo
the sums. Please note that if the calculator is being
used to compare cities whose exchange rate you have
previously changed on the indices page, the tool will
initially default to the exchange rate chosen at that
time. Remember too that the index will be
automatically recalculated to reflect any changes to
exchange rates you make on the salary calculator page.
Step 6: Spendable
>> Net
By this stage the
calculator has arrived at a number for spendable
income in the destination city. The calculator now
uses the exchange rate selected in Step 5 to convert
the values for housing, savings, hardship and other
allowances into the destination-city currency and adds
the sum of all these items to the spendable income
figure. As a result the calculator computes a value
for net salary in the local currency of the
destination city.
Step 7: Net >> Gross
The calculator now
performs a similar operation to the one it undertook
in Step 1. It uses the EIU disposable income tables to
find out what the level of gross income must be in the
destination city if take-home pay in that city is at
the level calculated. That number is the gross salary
which needs to be paid to the employee in the
destination city to account for the cost-of-living
difference with the base. In cases where there is no
disposable income data available, you at least know
the net salary that needs to be paid to the employee
in the destination city to account for the
cost-of-living difference with the base.
Can I save my
calculations?
If you have customised
the calculator, whether by changing exchange rates or
overwriting values, and wish to save these
adjustments, you can do so by hitting the Save
settings button. The next time you return to these
cities on the calculator, these settings will still be
in place. You can clear the settings by clicking on
the Clear settings button. Please note that any
changes made to the exchange-rate fields in the salary
calculator will be reflected for the relevant cities
on the indices page. |
