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Base wage rate, also known as base pay, is the pay rate that an employee earns before any overtime, bonuses, benefits, taxes, or other modifications. Base wage rate may be described as an hourly wage or as a weekly, monthly, or annual salary.
For example, say an hourly employee earns $20 per hour plus overtime and an annual bonus of $5,000 if they work more than 30 hours per week. This employee’s base wage rate is $20 per hour—overtime pay and the annual bonus are not included in base pay.
Modifications that are not included in an employee’s base wage rate may include:
- Overtime pay
- Bonus pay
- Commissions
- On-call pay
- Incentive pay
- Employee benefits
- Employer-paid insurance premiums
- Taxes
- Deductions
Base Wage Rate vs. Gross Pay
Base wage rate only includes an employee’s hourly wage or base salary. Gross pay includes base pay as well as additional pay from overtime, bonuses, commissions, incentives, and other forms of compensation.
Gross pay is higher than base pay for many employees who receive these forms of additional pay. However, for salaried employees who do not receive bonuses or incentive pay, gross pay may be the same as base wage rate.
Determining the Right Base Wage Rate for Your Employees
Determining the base wage rate for an hourly or salaried employee depends on a variety of factors. Here are some of the most important things to consider when evaluating base pay.
Job requirements
The requirements of a job will play a large role in the base pay for that position. A job that requires more skills, experience, or training will generally have a higher base wage rate than a job that does not require experience. Companies can offer a lower base wage rate for a skilled position, but they may have a hard time attracting qualified candidates.
Similarly, the workload and difficulty of a job should play a role in determining the base wage for that job. A more difficult job or one that requires more strenuous effort typically carries a higher base wage.
Cost of living
Base pay is usually closely tied to the cost of living in the geographic location where a job is located. As cost of living increases, companies often need to adjust their base pay in order to attract and retain qualified employees. Companies that offer similar positions in multiple locations may want to consider implementing a geographic pay differential.
Employee qualifications
Not all employees in a similar position need to have the same base pay. If one employee or candidate is more qualified for a position than another, it may make sense to offer them a higher base wage rate.
This is often a tactic used to attract and retain talent. For example, a candidate with a master’s degree may be offered a higher base pay for a position than a candidate with a bachelor’s degree.
Compensation strategy
Your business may offer a base wage rate that is higher or lower than the industry average for a position depending on your compensation strategy.
Some businesses offer high base wage rates but few additional benefits. Others offer lower base wage rates, but offer more overtime pay, bonuses, or commissions that can boost an employee’s gross pay. Some companies offer average base pay and rely on benefits like health insurance, remote work, or paid time off to attract employees.
The status of the job market can also influence your business’s compensation strategy. In a hot job market with fierce competition for talent, it may be necessary to offer a higher base wage or more benefits to attract and retain employees. Many businesses conduct annual job evaluations, which include researching what competitors pay for similar positions.
Minimum wage requirements
Keep in mind that base wage rates are subject to federal and state minimum wage requirements. Based on federal law, an hourly employee’s base wage rate cannot be less than $7.25 per hour or $15,080 per year. A full-time salaried employee’s base pay cannot be less than $684 per week or $35,568 per year. Many states have higher minimum wage requirements.
Conclusion
An employee’s base wage rate or base pay is the amount they are paid for their work before any additional pay, taxes, or modifications. It is typically described as the employee’s hourly pay or their annual salary.
Determining the right base wage rate for an employee depends on many factors, including the employee’s qualifications, the job requirements, and your company’s compensation strategy. Base pay cannot be less than the federal or state minimum wage that applies to your company.
