Whether you’re hiring a new employee or looking to make changes to compensation packages, one term you’ll often hear is base salary.
Base salary is the initial amount of pay, before tax and additional compensation. However, base salary is only one part of an employee’s total compensation.
In this article, we’ll cover the basics of base salary and how it affects you as an employer.
What Is Base Salary?
Base salary is the minimum amount of pay, before tax deductions or any additional compensation that an employee will receive for their work. Base salary is commonly determined on an annual basis but can also be provided on a weekly, bi-weekly, monthly, or even daily basis.
Base salary is typically the amount that is highlighted as the compensation in a job offer. However, typically only makes up a portion of an employee's total compensation package. The total package includes things like additional earnings, benefits, paid time off, and any other employer perks.
An employee’s base salary is also often different from their net pay or take-home pay. Take-home pay is what they will get in their bank accounts after taxes and other employee deductions.
Base Pay vs. Annual Pay
Base pay is essentially the minimum an employee will earn in a year or a specified period of time. Annual pay (or gross pay) considers all other factors, such as overtime, bonuses, sales commissions, and other benefits. Depending on your team’s compensation package, some employees can have very different annual salaries compared to their base pay.
Additional benefits and earning opportunities are a great way for employers to boost the total annual pay in lieu of providing a higher base pay. This can include perks like health insurance, additional time off, or even employee stock options. Keep in mind that in most situations, base pay cannot be lower than the minimum wage required by law.
Annual costs of an employee tend to be significantly higher than base pay. Looking at annual pay can give your company better insight into the cost of hiring an employee. However, you should also be considering things like employer costs and hiring costs when budgeting for a new employee.
Base Salary vs. Hourly Pay
Hourly pay is the amount an employee is paid per hour on the job. The total compensation will depend on the number of hours worked and the hourly rate. Meanwhile, a base salary is a fixed amount of compensation that is based on a fixed number of hours. Most salaried employees are compensated based on an annual base salary.
Many employees tend to prefer a base salary over hourly pay as it provides consistency in income. However, the benefit for certain hourly employees is that they are typically eligible for overtime pay.
How To Calculate Base Salaries
There are a few ways to calculate base salary.
If you have the amount of total annual pay, you can subtract the following to calculate base salary.
- Bonuses, commissions, overtime, and any additional earnings
- Cost of benefits such as insurance premiums, pension contributions, and any other benefits paid for
If using hourly pay, you can calculate an employee’s base salary using the following formula.
Base pay = (Number of hours worked per week) x (hourly wage) x (52 weeks)
Note that the average full-time employee works approximately 35-40 hours a week.
If you’re looking to understand the base salary for a role, remember that it can vary significantly depending on the location and industry. Things like seniority, job title, cost of living, and required skill sets can impact the salary and total compensation package. Use Deel’s Salary Insights tool to help you determine the average salary for a role in any country.
Deel helps employers hire employees around the world without the hassle. We help guide you through the hiring process and take care of employment details. So you can focus on offering a competitive base salary and building your best business.