What is a base salary?
Base salary is a term seen commonly on job descriptions. It’s also sometimes referred to as basic pay. But what exactly does a base salary consist of? And what is considered an addition to or deduction from your base salary?
What does base salary mean?
Base salary refers to the amount that an employee earns before any extras are added, or payments are deducted.
In fact, a base salary is independent from any form of benefits and bonuses. You’ll also find that base salary does not include superannuation (super) payments, car allowances, or other compensation benefits.
You can give an employee’s base pay as an hourly, weekly, monthly or annual salary. For example, a job which promises a base pay of $25 per hour means that the employee will earn a salary of $25 for every hour worked.
Does base salary differ from hourly rates?
In short, yes. The base salary for your employees will remain consistent, while hourly rates—known as wages—will vary based on the time of day and duration of the shift.
For example, employees are entitled to a higher hourly rate when working weekends and public holidays. However, they aren’t entitled to the full 38-hour working week. This means their hours will differ depending on the allocated shift patterns.
What is considered an addition to base salary?
As part of their contract of employment, businesses may provide certain other financial benefits. These are considered “additions” to an employee’s base salary, and contribute towards the calculation of their annual salary.
Additional extras on top of a base salary can include:
- 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)
- Allowances for internet and telephone for home working
- Non-monetary extras such as mobile phone, company car, gym membership
What is considered a deduction from base salary?
Most employees will also have some form of deduction from their base salary. These kind of deductions from base salary can include the following:
- 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
Again, similarly to additions to base salary, deductions are taken into account when calculating an employee’s annual salary.
What is the difference between base salary and annual salary?
Base salary is just one part of an employee’s annual pay. An annual salary is the combined amount of benefits and earnings an employee earns in a year. This includes the example additions to base salary mentioned above, such as bonuses, overtime, investments and insurance policies.
It’s easy to see why having a system in place to calculate base and annual salaries can save businesses time and effort.
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You’ll be amazed by how much easier Breathe’s payroll solutions make paying your employees. Single Touch Payroll (STP) puts reporting and submissions down to a single button press, letting you manage base salary, additions and deductions in no time at all.
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