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What is basic salary?

1 min read | 21 February, 2017 By Melissa Jones

    

Basic salary refers to the amount that an employee earns before any extras are added or payments are deducted.

Examples of additions to basic salary

Additional extras on top of a basic salary can include:

  • Bonuses
  • Overtime payments
  • Performance-related benefits and commission paid on sales
  • Tips and gratuities (where paid by the company, not where paid directly from customers to staff)
  • Expenses
  • Allowances for internet and telephone for home working
  • Non-monetary extras such as mobile phone, company car, gym membership

 

Examples of deductions from basic salary

Deductions from basic salary can include:

  • Salary sacrifice schemes – for childcare vouchers, share options, and so on
  • Pension contributions
  • Contributions to a company car or mobile phone
  • Repayments against a company loan or a student loan
  • Deductions for cash shortfalls or stock deficiencies (in retail situations)
  • Court order deductions and child maintenance payments
  • Union subscriptions
  • Pay deductions due to industrial action, such as striking
  • Charity donations
  • Tax and national insurance

Basic salary vs. on-target earnings

An example of a basic salary might be £25,000. This is what you would advertise as the rate of annual pay if you are hiring for a new role. That will exclude any bonuses you might offer, as well as allowances and expense payments.

When it comes to sales roles, you may offer a basic salary only or, if you pay commission, it’s common to express the offered salary as on-target earnings – known as OTE. On-target earnings are the basic salary equivalent that an employee can expect to be paid if they meet all their sales obligations. This can include a basic salary with an element of commission, but some organisations choose to pay commission only.

When it comes to the actual monthly or weekly payment, as summarised on a payslip, the basic salary is detailed. Any extras are added, and any deductions – as well as tax and national insurance – will be subtracted.

A typical pay slip separates and sub-totals the additions and the deductions, which makes the payslip easy to read.

recruitment blog cta

Posted on 21 February, 2017

By Melissa Jones

in Business Process

Tag Business Process

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