All you need to know about base salary and what it means

Base salary, also called base pay, is one of the most crucial components of your monthly paychecks and annual salary figure. To fully understand your compensation and determine whether you’re being adequately rewarded for your efforts, you need to have a strong understanding of your base salary.

In this blog post, we’ll take a deep dive into base pay and discuss:

• The meaning of the phrase ‘base salary’

• The science behind the calculation of base salary

• The art of negotiating your base salary

What exactly is base salary?

Your base salary is the minimum, guaranteed amount of money you can expect to earn from your employer in exchange for your services. This is your basic salary figure before any bonuses, benefits, commissions, reimbursements, taxes, or other deductions are considered. 

Unless otherwise mentioned in your employment agreement, your base salary will remain the same throughout the year. This figure will only be revised in certain conditions, such as a pay raise, promotion, and/or adjustment for inflation. 

Salaried vs. hourly-rate employees

In almost all cases, a base salary is offered to full-time salaried employees of a company. This figure is typically fixed for an entire year. It only changes when you receive a promotion at work or at the time of your annual or semi-annual performance review (depending on your performance). 

Salaried employees are typically expected to work 35-40 hours a week, and their working hours are not carefully monitored. While this does give them the flexibility to take a break for lunch, smoke, or to run a few errands during work, it does restrict them in terms of compensation. Whether you work 30 hours in a week or 50, your base salary will remain the same and it might be difficult to apply for overtime since it is challenging to track your time on a special project.

Hourly employees, on the other hand, are paid based on the number of hours they work. They also qualify for overtime payments as long as they properly record their hours and show progress. This type of pay is common in organizations that require shift workers, especially during weekends or the holiday season, such as retail stores, restaurants, manufacturing plants, and hospitals. 

When it comes to base salary, the key difference between salaried and hourly-rate employees is expectations. Salaried employees are expected to complete their tasks, even if they have to work overtime. On the other hand, hourly-rate employees are only paid for the hours they work, and they can claim overtime payment of up to 1.5 times their basic pay. 

How is base salary calculated?

Base salary depends on the nature of the job, the organization’s policies, industry averages, and federal/state/local regulations (such as minimum pay). Your qualifications and previous experience will also play a crucial role in your base salary. Finally, your working arrangements (full-time or part-time) are also important.

Your base salary will be stated on your weekly, bi-weekly, or monthly pay stubs. To calculate your annual base salary for a given year, you can use the following formula:

[Regular pay amount per pay period] x [Total number of pay periods in the year]

What’s the difference between base pay and annual pay?

Base pay is the basic minimum wage you’re expected to earn on your job. This number will change in the event of a promotion or pay raise. On the other hand, your annual pay includes additional amounts, such as bonuses, commissions, lieu pay, leave encashment, and other monetary benefits provided by your employer. Annual pay also includes overtime payments, which are otherwise ignored when calculating basic salary.

Can you negotiate your base salary?

Yes, you can. Whether you’re about to sign an offer letter or you’ve already signed it, you can prepare a case to demand a higher base salary from your employer. Here are a few tips on negotiating your base pay.

Do your research

Before preparing your salary negotiation pitch, conduct some market research. See what other organizations are paying someone with your skills and job title in your area and how changing your skills will impact your compensation. Consider reaching out to recruiters to obtain some salary insights. Recruiters often have in-depth knowledge of salary figures, and they can guide you better. Once you know your worth, it will be easier for you to bargain for a higher base salary. 

Prepare a salary range

Instead of providing a ballpark figure, try providing a base salary range to your employer. Your minimum figure should be the lowest amount of money you’re willing to receive in exchange for your services. The highest figure is the maximum amount of money someone with your education, skills, and experience can make in a similar job role. Also, make sure to indicate your flexibility with the compensation. This will likely make your employer feel more comfortable when sharing your revised base salary figure with you.

Ask the right questions

One of the biggest secrets to successful salary negotiations is to ask the right questions. Instead of making the conversation about yourself and why you think you deserve a raise, make it about the employer. Ask them about their needs and expectations with your job role. Your questions should also include the company’s growth plans and how you are expected to contribute toward those goals. Finally, talk about your achievements and future plans with the company to emphasize that you are the very best person for the job. This type of conversation is likely to convince the management to reconsider your base salary. 

Know when to say no

Initiating salary negotiations are a vital part of employment, but it’s equally important to know when to give it a rest. If you feel you’re not being adequately compensated for your efforts and your employer is only raising your base salary marginally, you can put your foot down and start looking for another job. If you haven’t accepted the job offer yet, you can rescind it and apply elsewhere. 

Keeping your salary negotiation clear and concise can increase your chances of getting a base salary that’s in line with your expectations. However, if things aren’t going your way, you’re well within your right to take a step back and consider other opportunities.  

Provide a counteroffer

Whenever you’re heading into a salary negotiation discussion, remember that you might not have things your way. Your employer is likely to provide a revised base salary figure that likely still won’t be enough in your mind. In this case, have a counteroffer ready.

In this counteroffer, you could ask your employer to revise your other benefits if they’re not agreeing to change your base salary to meet your expectations. For instance, you could ask for a better bonus structure, lower heath benefit payments, some sort of a grant to pursue education, or even a fuel/internet allowance depending on the nature of your job.

Key takeaways

1. Your base salary is the minimum amount of money you can expect to earn at your job. This figure does not include additional payments such as bonuses, commissions, and benefits or deductions such as taxes.

2. In almost all organizations, the base pay depends on the nature of employment. Salaried employees have a fixed basic pay that is not contingent on the number of hours they work. In contrast, hourly employees have a basic pay that’s solely based on the hours they work.

3. If you’re not happy with your base salary, you have the option to talk to your current or future employer and negotiate.