An employee’s basic salary, also known as their base salary, is the amount they earn each year before additional pay, taxes, or other modifications. Basic salary typically applies to FLSA-exempt employees who receive an annual salary. Hourly employees receive a base wage rate.
Basic salary only includes the pay a salaried employee is guaranteed for their work. It does not include:
- Bonus pay
- Incentive pay
- Insurance premiums paid by the employer
For example, say an employee has an annual salary of $75,000 and is eligible for a productivity bonus of up to $10,000 at the end of each year. The employee’s base salary would be $75,000 since the base salary does not include bonus pay.
Basic Salary vs. Gross Pay vs. Net Pay
Basic salary is distinct from gross pay and net pay. Base salary only includes wages without taking into account any modifications.
Gross pay includes both basic salary and additional pay such as bonuses, incentive pay, and commissions. Gross pay also includes overtime pay, although most salaried employees do not receive overtime pay.
Net pay is equal to gross pay minus any deductions, such as taxes and the employee portion of health insurance premiums.
Changes to Basic Salary
An employee’s basic salary can change over time. Companies often increase an employee’s base salary when they receive a promotion or as a reward for a long company tenure.
Companies can also reduce an employee’s base salary during tough economic times, although this is relatively uncommon. Employees participating in at-will employment are free to leave a company rather than accept a reduced base salary.
How is Basic Salary Paid?
Salaried employees receive their salary at regular intervals based on a company’s pay frequency. Many companies offer biweekly pay, meaning employees are paid every other week. In this case, employees would receive one twenty-sixth of their salary every two weeks.
Note that the amount paid at the end of each pay period is not calculated using basic salary but rather net pay. Net pay includes any additional pay the employee is entitled to and deducts any taxes or other costs for which the employee is responsible.
How to Determine Basic Salary
Determining what the basic salary should be for each of your employees and open positions is complex. Here are a few of the factors that companies should consider when setting base salaries.
A good place to start when determining the basic salary for a position is to see what competing companies in your area are offering for similar positions. Companies with higher basic salaries are often more competitive in attracting talent. However, companies may also be able to offer a lower basic salary if they supplement it with generous benefits or additional compensation.
Many positions have a basic salary range rather than a fixed basic salary. This range gives employers the flexibility to pay different amounts based on how qualified the employee in a position is. For example, a company may be willing to pay a higher base salary to an employee who has more years of experience or an advanced degree.
Cost of living
To attract and retain employees, companies need to make sure that their basic salaries are keeping up with the changing cost of living. As the cost of living rises, it’s important for companies to reassess their base salary ranges and adjust them as needed.
Companies with multiple offices may also implement a geographic pay differential to account for different costs of living in different locations.
Federal and state laws require employers to pay full-time salaried employees a minimum base salary of $684 per week or $35,568 per year. Individual states may require higher base salaries.
Basic salary is the amount a salaried employee is paid before additional pay or deductions. It may be less than gross pay for employees that receive bonuses or other forms of payment. When determining basic salary for an employee, companies should consider the employee’s qualifications, the cost of living, and what competitors are paying for similar positions.