Basic salary is a term seen commonly on job descriptions. Also referred to as basic pay, what does it actually mean?
In this blog, we'll cover examples of additions & deductions to basic salary, along with on-target earnings.
What is basic salary?
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:
- 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
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.
You can find more information on payroll in our blog and resource.
Author: Aimee Brougham-Chandler
Aimee is a Content Assistant here at Breathe. She enjoys writing about topical HR issues & helping readers find solutions. In her spare time, she is commonly found amongst books.
Posted on 3 March, 2022