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.