An HR Glossary for HR Terms
Glossary of Human Resources Management and Employee Benefit Terms
What Is Base Salary?
Base salary is the amount of money a salaried employee regularly earns before any additions or deductions are applied to their earnings.
Employees will likely encounter their base salary as part of the initial job listing. When a person is offered a job, the formal offer letter will include the base salary. Then, when an employee is hired, the base salary will be included in the employment contract.
Additions and deductions to base salary can significantly affect the size of an employee’s paycheck. Here are some common adjustments:
- Stock options
- Overtime pay
- Incentive pay
- Federal and state taxes
- Health insurance premiums
- Retirement account contributions
- Garnished wages
How to Calculate Monthly Income
Salaried employees receive the same fractional amount of their annual base salary every payday. To calculate the amount:
- Determine the number of pay periods in a year. Does your company pay every other week? Or twice a month?
- Companies that pay every other week have 26 pay periods in a year. Each paycheck will be 1/26 of the annual salary.
- Companies that pay twice a month will have 24 pay periods in a year. Each paycheck will be 1/24 of the annual salary.
- Divide annual base salary by the number of pay periods in the year.
- For example, if you make $70,200 a year and are paid twice a month, divide it by 24. The base salary for each paycheck is $2,925 before additions or deductions.
- At a company that pays every other week, that same annual salary has a base salary per paycheck of $2,700.
- Calculate monthly income based on the number of pay periods.
- If you are paid twice a month, your monthly income will be consistent. To calculate your monthly income, you can divide your base salary by 12.
- If you are paid biweekly, your income will be mostly consistent month-to-month. However, because each month varies in the number of days and weeks, two months in the year will have an extra paycheck.
How to Calculate Annual Income Biweekly
To calculate annual income on a biweekly basis, you need to divide your annual total by the number of biweekly pay periods in a year. A year has 52 weeks, and since biweekly payments occur every two weeks, there are 26 biweekly pay periods in a year.
Base Salary vs. Hourly Rate
Employees paid a base salary receive a fixed amount each pay period regardless of how many hours they work. In contrast, employees who receive hourly pay are compensated for the number of hours they work. Unlike most salaried workers, hourly workers are generally also entitled to overtime pay if they work more than 40 hours in a week.
What Is the Difference Between Base Salary, Gross Pay, and Net Pay?
Unlike base salary, gross earnings and net wages take into account additions and subtractions to an employee’s standard rate of pay:
- Base Salary: fixed pay an employee receives for their work, excluding bonuses or additional compensation
- Gross Pay: base salary plus all additions
- Net Pay: pay after gross earnings have been totaled and all taxes and other deductions have been subtracted
Base Salary Example
Jamal is hired by a company that agrees to pay him a base salary of $48,000 ($4,000 per month). When Jamal receives his first monthly paycheck, he sees:
- Base Salary: +$4,000
- Hiring Bonus: +$1,000
- Tax Withholdings: -$1,050
In this example, Jamal's gross earnings (e.g., pay before taxes) are $5,000. Once taxes are withheld, his take home pay (also called "net wages") is $3,950.
Can Base Salary Change?
Yes, base salary can change due to increases or reductions in pay.
Many jobs have a salary range, which consists of a minimum and maximum amount set by a company for a given position. This range is determined based on market rates for the work and the employee's experience and skills. Initially, a new hire with limited experience might receive the minimum amount within that range as their base salary. As the employee gains more experience and enhances their skills, they may receive raises, gradually progressing towards the maximum pay for their position.
While reductions in base salary are uncommon, they can occur during challenging economic times when a company needs to tighten its belt. Unless there is a formal employment contract specifying a particular salary, companies have the freedom to lower an employee's base salary. However, in the absence of a contract, employees also have the freedom to choose to leave the company rather than accepting a lower base salary.
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