Basic Salary

What is a basic salary?

A basic salary refers to the amount of money that a salaried employee regularly earns before anything is added to it or taken from it. This means that it is the amount that you earn before any additional compensation is added and any deduction is applied. The basic salary is a regular or predetermined amount that an employee receives each pay period. 

Examples of additional compensation that can be added to the basic salary are incentive pay and bonuses. Common examples of possible deductions are health insurance employee contributions. 

How can I compute my basic salary from my annual basic salary?

If you are a salaried employee and you only know your annual basic salary information, you can easily compute your basic salary from there. Employees who are on salary receive a portion of the annual basic salary throughout the year, spread out over pay periods. The pay period depends upon the agreement between the employer and employee. Employees receive their paychecks regularly every month or twice a month. 

To calculate your basic salary, count the number of pay periods that you have in a year. For example, it would be 12 pay periods for monthly and 24 pay periods for bimonthly. Next, divide the annual basic salary by the number of pay periods. This means that, for an employee with 24 pay periods in a year, they will receive 1/24th of their annual basic salary every payday. 

Is there a difference between basic salary and hourly pay? 

Let’s define a few terms first:

• Salaried employees: employees who receive a basic salary
• Hourly employees: employees who receive hourly pay or are paid “by the hour.” 

The primary difference between a salaried employee and an hourly employee is that salaried employees are paid a fixed or predetermined amount of money every payday, no matter how many hours they work. On the other hand, hourly employees are paid hourly wages for each hour that they work. 

Additionally, most salaried employees are not paid for overtime. This means that even if they exceed 40 hours per week of work, they will still get the same amount of basic salary. Hourly employees are usually paid for overtime. Salaried employees typically do not need to keep a timesheet while hourly employees need to have a timesheet to log their work hours. 

Will my basic salary remain the same or can it change? 

When businesses hire employees, they typically have a salary range for a specific position. Salary ranges state the minimum and a maximum or ceiling salary that they can offer a candidate upon hiring. Salary ranges vary. They are influenced by several factors such as market rates for the job and the level of experience of skills of the employee. 

Somebody with little work experience relevant to the position may be offered the minimum basic salary while a person with more advanced experience can be offered more. As employees advance in their jobs and gain more skills and experience, they can move up in the salary range. 

Incremental increases in basic salary are common while reductions in basic salary are a  less common practice. The option to reduce an employee’s basic salary is up to the employer. However, this should be done with caution because employment contracts usually stipulate if the basic salary must continue. 

Basic salary, gross earnings, and net wages: what’s the difference? 

These three terms may be confused for they all refer to an employee’s compensation. While they are all connected, they are not the same. 

Earlier, we talked about basic salary as what salaried employees regularly receive every payday, before anything is added or subtracted. Let’s take a look at the other two terms:

• Gross earnings: this is the basic salary PLUS any additional amount earned by an employee (incentive pay, bonus, commissions)

gross earnings = basic salary + additional compensation

• Net wages: simply, put, this is what an employee gets to bring home. This is what is on the paycheck after taxes and deductions have been taken from gross earnings. 

net wages = gross earnings – taxes & other deductions

For example:

Veronica was recently hired at a company that will pay her $4,000 per month. She’s been informed that she will have a hiring bonus of $1,000 and she will share the cost of some of the health benefits. Upon receiving her first paycheck, Veronica saw that it amounted to $3,950. 

Using this example, we can say that:

• Veronica’s basic salary is $4,000. 
• Veronica’s gross earnings are $5,000 for the month. This is her basic salary plus the hiring bonus. 
• Veronica’s net wages are $3,950. This is her gross earnings minus all taxes and deductions for the month.