Whatever industry you’re working in, you need to have a solid understanding of how employee packages work.
After all, your pay is probably the biggest incentive that gets you out of bed and into the office in the first place.
One of the most fundamental parts of your pay packet is your base salary. It’s what all the other areas of your compensation is based on.
This includes things like tax deductions, additional referral bonuses, and other allowances.
Here, we’ll talk about what base salary means, how it works, and the factors that can affect how much you’re making.
- Understanding Base Salaries
- How Does Base Salary Work?
- Who Gets a Base Salary?
- What Are the Factors that Affect Your Base Salary?
- How Do You Calculate Base Salary?
- Can Base Salary Change?
- Wrapping Up
Understanding Base Salaries
Here’s your guide to understanding everything there is to know about your pay package.
What Is a Base Salary?
Base salary is the fixed initial sum that an employer decides to pay a ‘salaried’ employee in exchange for their time and services.
The amount decided on in a pay packet is before any taxes and other deductions have been withdrawn. Plus, it doesn’t include extra pay like benefits or bonuses.
The HR department is responsible for deciding on the base salary for each job position and is usually expressed in one of three ways:
- Hourly rate
- Monthly income
- Annual salary
How Does Base Salary Work?
Any employee who decides to become part of an organization has to initially sign an agreement, work contract, or letter of intent.
The agreement clearly states all the terms of the employment. These terms range from job description, expected work hours, compensation packages, and benefits.
It also includes the base salary amount. If you feel that this offer doesn’t match the amount you deserve, you can always negotiate a better salary.
So, to recap:
A base salary is the basic amount you can expect to receive before any tax deductions and other allowances are removed.
It’s worth noting that base salaries don’t include any form of compensation or reimbursement, such as:
- Incentive-based pay
- On-call pay
- Shift differential pay
- Special assignments
Base Salary vs. Wage
Someone not used to all this financial jargon may think they sound the same. While they share a few similarities, the primary difference between the two terms is more legal than anything else.
The base salary is what a ‘salaried’ employee receives at the end of a prearranged time agreed on by the employer.
As such, they’re exempt from overtime pay because their base salary is a fixed amount regardless of how many hours they work.
A base wage is what an employee receives when they work by the hour. Then, if they work more than 40 hours in a typical work week, they can receive overtime on top of their basic wages.
Base Salary vs. Compensation
As previously mentioned, base pay is the pay you receive for doing your job for a pre-set amount of time. Yet, it’s not the amount you’ll take home at the end of a week.
Keep in mind that you still have to deduct taxes, a 401(k) plan, and other deductions.
Compensation, or gross pay, is a whole other story. It’s the pay packet you receive from your employer for services rendered outside the scope of the original job description.
There are also many cases where employers offer performance-based incentives, such as commission.
Most businesses offer a commission rate that starts at 5% of the total sales value that the business earns each time they close a deal.
Yet, we should mention that companies that pay a high salary base will usually pay a low commission rate.
The opposite is also true: if you’re receiving a high commission rate, it’s because the company is offering low base salaries.
For hourly jobs that require basic skills, compensation will most likely be the same as base pay, as well as overtime pay and tips.
Then, there are more specialized jobs that offer more pay. Employees who fall in to this category usually receive additional benefits that extend beyond their base salary, such as:
- Stock options
- Bonus pay
- Sales commissions
- Vacation benefits
- Merit pay
- Health insurance
- Use of a company car
Who Gets a Base Salary?
Most places of employment offer a base salary to employees who work 40 or more hours per week. These are ‘salaried employees.’
They receive their salaries as fixed, predetermined pay issued in weekly, biweekly, or monthly installments. This is in contrast with employees who work by the hour and are compensated accordingly.
Here’s a quick comparison of the two:
Salaried employees are expected to carry on with their work responsibilities even if their work extends beyond normal hours.
Some companies don’t even require salaried employees to keep track of their work hours.
According to the Fair Labor Standards Act (FLSA), these workers are exempt from federal labor laws that govern overtime compensation. In other words, they won’t receive any extra pay despite having worked more than the minimum hours set by their employers.
Another factor to consider is what’s known as a ‘salary threshold.’ This threshold is determined to be $684 per week or $35,568 annually.
If an employee makes less than this threshold, they qualify for overtime. Yet, once they go over this threshold, they stop receving overtime pay.
There’s another group of employees who don’t qualify for base salaries, but are paid by the hour: hourly employees.
‘Hourly employees’ receive payment for each hour of work based on the rate of the minimum wage set by federal and state laws.
Another difference between the two is that ‘hourly employees’ are entitled to receive overtime compensation.
This extra pay is calculated at a rate of 1.5 times their usual wages if they work outside normal work hours.
What Are the Factors that Affect Your Base Salary?
Whether you work full-time or part-time, temporary or permanent, you’re guaranteed a base salary that fairly compensates your time and effort.
To ensure a sense of propriety and impartiality, various factors determine what the base salary for each job position will be.
The two most prominent factors are your profession and the industry in which you work. It shouldn’t come as a surprise that base pay rates differ significantly between professions.
Specialized professions that require advanced education and a unique skill set are more likely to receive higher base rates compared with those that require basic education.
Other factors that can affect your base salary include:
- Job title
- Level of experience
- Work location
- How competitors compensate employees in similar roles
- The number of people who qualify to fulfill your responsibilities
Military Base Pay
Also known as military basic pay, it refers to the compensation amount received by members of the US military.
The amount is calculated according to each member’s pay grade and how many years they’ve been in service.
This payment represents the largest sum of the member’s pay packet.
Plus, military base pay doesn’t include other forms of compensation that a typical member receives like food allowances, housing (BAH), bonuses, hazard pay, clothing, and cost-of-living adjustments.
MIlitary base pay usually changes as a result of annual pay increases.
According to the US Department of Defense, it’s estimated that in 2023, monthly base salary for active members on duty ranges from $3,637 for entry-level officers to $8,255 for more senior officers with over 10 years’ experience in military combat.
How Do You Calculate Base Salary?
To determine the amount of your base salary, you need to know the number of pay periods per year. You also need to know the amount of your annual basic salary.
Then, divide the number of pay periods during one year of working at your company. So, for example, say all employers get paid at the end of each week. This means that there are 48 paydays in a year.
In other words, each worker will receive one-forty-eighths of their annual base salary on every payday.
Can Base Salary Change?
Companies have salary ranges for each of their job positions. This is the minimum and maximum amount that a company is willing to pay to fill that role.
Several factors go into determining this range. This includes market rates for that position, the level of experience of the employee as well as their skill set.
In many workplaces, the rate at which base pay is sent out is usually in biweekly intervals.
Although, this may change depending on your employer’s preferences and the terms you agreed to when coming to work for the company.
So, not only can the payout rate change, but the amount of the base salary can also change. Take a look.
Base Salary Increase
For example, a new hire with limited experience will receive a base salary that falls into the ‘minimum salary’ category. Then, as they gain more experience and improve their skills, their base salary will increase.
Then, little by little, they’ll reach the maximum pay range set aside for their job position.
Base Salary Decrease
Reductions in base salary are much less common. In general, they’re often the result of the company struggling financially. So, employers choose to reduce an employee’s basic salary instead of laying them off.
Sometimes, companies issue a contract stating that there will be specific salaries within the organization that can’t be reduced.
This is usually to protect senior members of management and ensure their pay remains the same no matter what financial difficulties the company is going through.
If no such contract exists, the company may decide to reduce the base salary. In this case, there are no legal obligations for the employee to stay.
They’re free to end their employment instead of having to settle for a lower basic salary that doesn’t meet their needs.
Remember, base salaries are negotiable. So, if you’d like to stay at your job, then why not negotiate for better terms on your basic salary?
It’s important to understand the aspects of your employee package, including your base salary. When you’re confident that you’ll be well compensated for your time and effort, you’ll be a happier, more productive employee.
However, if you feel the terms can be improved, don’t hold out on yourself. Gather any relevant data that can help you negotiate the amount you believe you deserve, and go for it!
Comment below if you have any questions.