Everything you need to know about base salary
Every employee needs to know the baseline sum they are receiving for their work. Base salary, or what we also call basic salary or base pay, is the fixed pay an employee earns regularly. It is the foundation of a compensation package.
Knowing your base pay can make it easier to plan your finances and career growth. Read on for a better understanding of base salary and how to effectively negotiate for a fair one.
- What is the base salary?
- Base salary calculation methods
- Salaried employees vs. hourly-rate employees
- Gross income and net income
- Annual vs. monthly salary
- Factors that determine a fair base salary
- How to negotiate your base salary when you get a job offer
- Conclusion
- FAQs
What is the base salary?
Base salary is the minimum amount of pay an employee receives from an employer. It is based on the agreement made during the hiring process. You usually see it as an annual salary, but employers commonly pay it monthly. In some jobs, workers earn an hourly wage. Base pay is the income you receive before any additions or deductions, such as income tax or pension contributions.
Companies can offer more than just payment for your employment. They often include additional perks and other benefits on top of base pay. These make up a compensation package, which varies according to the company and industry.
It includes:
- Base pay
This is the amount the employer agrees to pay for your work. It may be described as an annual salary or hourly wage, but you can calculate your monthly income from this figure. - Time off
You are eligible for a certain number of paid sick and vacation days. - Overtime pay
This is compensation given by companies for hours worked beyond the standard workday. Some companies may offer time off instead of additional pay for overtime hours. - Shift difference pay
Employers typically provide this to employees who work shifts outside the standard daytime hours, such as evenings, nights, weekends, or holidays. The differential pay rate is generally higher than it is for daytime shifts. - Bonuses
Your employer may offer bonuses based on your annual performance or time with the company. For example, companies typically give Christmas bonuses to reward employees for their hard work. - 13th-month salary
This is separate from a bonus. It is not mandatory, but it is customary for employers to pay a 13th-month salary at the end of the year. This amounts to about a month's salary or wages. - Commission
Some workers earn additional payments for transacting a piece of business. The commission is often a percentage of sales. For instance, a salesperson might earn an extra 10% of the total deals they close monthly along with their base pay. - Allowances
Some companies offer employees allowances on top of their base pay. It covers expenses related to their jobs, such as travel costs. This is usually given monthly as part of their total compensation package. - Insurance
Companies usually offer health insurance benefits through a job-based health plan. Health care benefits may include medical, dental, and vision coverage. - Perks
These include special incentives offered in the workplace, such as discounted products or remote workdays. Additionally, gym memberships are frequently provided to employees as a common perk.
Base salary calculation methods
Companies build an employee's total compensation package on the foundation of a base salary. It serves as a benchmark to determine additional benefits. Base salary is calculated in several ways. Some of the most common methods are:
Job evaluation methods
Job evaluation helps determine a job's importance relative to other job positions within the same company. It involves systematically comparing different roles to set fair pay rates. The process measures factors such as skill and responsibility. It then ranks jobs in order of their importance within the ecosystem.
There are 4 main methods of job evaluation: point factor, factor comparison, job ranking, and job classification. The point factor method assigns scores to job factors like skill and responsibility to determine job value. The factor comparison method benchmarks jobs against standards. Job ranking orders positions by importance, while job classification groups similar jobs to ensure equitable pay rates.
Market pricing
Market pricing sets pay rates by using market data from salary surveys and industry norms. This helps organizations maintain competitive salaries and align with what other companies offer. It ensures businesses attract and retain top talent with their base pay.
Base salary plus incentives
This payment approach is often used in sales roles. Workers get a fixed amount of base pay, usually paid monthly. Additionally, they earn incentives and commissions if they meet specific business goals and targets.
The base pay in sales roles is often structured to encourage employees to achieve sales targets through additional earnings. Sales representatives in the Philippines earn around PHP 20,000 per month. On top of this, they can significantly increase their total compensation through commissions and bonuses.
Equity-based salary
Employees can choose non-cash compensation in addition to their base pay, known as equity compensation. This includes stock options, restricted stock, and performance shares, which provide employees with ownership of the company. Often, this benefit is offered alongside a base salary that may be lower than the market rate.
This approach is prevalent among startups, which may lack the cash flow to offer full market-rate salaries. For instance, if the minimum salary for a marketing officer is PHP 22,000 based on market rates, a startup might offer PHP 20,000 instead. To make up for the lower salary, the employer may offer 10% company equity during salary negotiations.
Salaried employees vs. hourly-rate employees
Employers pay either an hourly rate or a salary, with the primary distinction being the method of payment.
Salaried employees receive a fixed monthly amount, regardless of the number of working hours. This is the most common form of payment, especially for full-time, permanent positions with fixed working hours. Salaried employees typically receive benefits such as paid time off, medical insurance, and retirement benefits, which are not usually provided to hourly workers.
Hourly employees earn a specific amount for every hour they work. These hours can vary from week to week. They may be paid weekly, biweekly, or monthly based on the total hours worked.
Gross income and net income
Gross income, net income, and base salary are related concepts. Companies use them to calculate the amount of money an employee earns and takes home. Base salary is part of gross pay. It is used for calculating the net pay.
Gross income
Gross income is the total amount an employee earns before taxes. It includes additional compensation, like commissions and overtime pay. Their gross income determines their tax liability.
Net income
Net income is the income employees take home after the employer subtracts taxes and other deductions. This figure can be used for budgeting and financial planning.
Annual vs. monthly salary
In a salaried position, employees typically receive an annual salary, which represents the total earnings for the year before taxes and deductions. A monthly salary, on the other hand, is the amount they earn each month, typically distributed in 12 instalments throughout the year. This can apply to both salaried and hourly positions, with payments based on either a fixed monthly amount or hours worked.
Annual salary structures provide employees with stability and predictability for their financial planning. This makes it easier to budget for long-term expenses, such as insurance and savings. Conversely, monthly salary structures help manage monthly expenses, bills, and day-to-day financial needs effectively, allowing employees to plan their finances on a shorter-term basis.
Factors that determine a fair base salary
Job role
A job's complexity and the expertise it requires can significantly impact base pay. Positions with greater responsibilities and specialized skills typically command much higher salaries, reflecting the value and rarity of the required expertise.
Job market
The demand for specific jobs in the market can also influence salaries. Industries experiencing worker shortages often offer higher base pay to attract and retain qualified candidates, ensuring they remain competitive in the talent market.
Industry standards
Different industries have varying salary ranges. These are based on market demand, competition, and the value of specific skills within that industry. Understanding industry benchmarks and salary surveys can help you know whether the base pay offer is fair.
Market economy
The cost of living, economic conditions, and labor market trends also influence the base salary. Organizations need to account for these when deciding on competitive base salaries. To ensure fair and legal employment practices, the amount also must comply with Philippine labor laws. This means it must meet minimum wage requirements and salary structure regulations.
Company budget
The company's financial health and employee compensation budget are valuable in setting base salaries.
Employee experience and education
An employee's level of experience, education, certifications, and specialized skills significantly influence their base salary. Employers often offer higher salaries to attract and retain individuals with advanced qualifications and expertise.
Performance and merit
Job performance, achievements, and contributions to the organization are key factors in base salary adjustments. Regular performance evaluations ensure that employees are rewarded fairly for their efforts and successes, thereby motivating them further.
How to negotiate your base salary when you get a job offer
Getting the salary, you deserve does wonders for your confidence and professional satisfaction. However, negotiating can be awkward and challenging. Here are a few tips on how to bargain effectively:
Before the negotiation
- Do your research
Compare salaries to understand the average salary range for your position, experience level, and location. Research the organization you are interested in. Look at its financial health, recent funding, and usual pay structure to get an idea. - Know your worth
To qualify for a higher base salary, you need to show evidence that you deserve it. Create a comprehensive summary of your past and current achievements, projects, and contributions demonstrating your value. Besides money, consider asking for benefits such as work flexibility and professional development. - Set your target and bottom line
Determine a realistic number that aligns with your research and exceeds your minimum needs. Define the lowest salary you would be willing to accept.
During the negotiation
- Start with gratitude
Let your potential employer know you appreciate the job offer. Be enthusiastic about the opportunity. - Be prepared to justify your request
Explain to them why you deserve the salary you are asking for. Focus on your unique skills and experience and the value you will bring to the company. Provide specific achievements and past results to support your claims. Be as clear and concise as possible with your ask. - Use "we" language and focus on solutions
Frame the discussion as a joint effort to find a solution that is best for everyone. Never use aggressive tactics or ultimatums. - Be prepared to walk away
While you should aim for a win-win outcome, prepare to politely decline the offer if the company cannot meet your minimum requirements. Remember, your worth goes beyond the base salary, and there might be other opportunities that better align with your needs. - Negotiate the entire package
Do not focus only on the base salary. Consider other aspects of the pay package. For example, look for signing bonuses, benefits, paid time off, or professional development opportunities. - Get everything in writing
Once you reach an agreement, get all the details of your compensation package, including the base salary, in a written document before signing.
Conclusion
You should understand the base salary you are receiving for your work. That salary paid to you is the foundation of your compensation package, which you can build on with different benefits.
As an employee, you are entitled to more than a monetary payment. Employers calculate base pay differently depending on the industry you are in. But you should get fair compensation by considering current market rates and what you bring to the table.
The workforce is always evolving, so keep a lookout for labour market trends that nurture your professional growth.
FAQs
- How do base salary and gross salary differ?
Base salary is the fixed amount of money an employee receives before any deductions or additional compensation. Gross salary includes the base salary plus all other forms of compensation an employee receives.
- Where can one find industry benchmarks for base salaries?
Online platforms such as Jobstreet can serve as sources for industry benchmarks. You can also learn more about base salaries from labour managers, industry conferences, and professional networks.
- What are effective approaches to negotiating a higher base salary?
To bargain for a higher salary, conduct thorough research on industry standards. You can highlight your skills and achievements and demonstrate the value you bring to the organization. Try negotiating merit and market value. Negotiate with confidence, professionalism, and a clear understanding of your worth and the company's pay structure.
- How is the base salary adjusted for part-time positions?
The base salary for part-time positions may depend on the number of hours you work compared to full-time employees. Companies can align part-time pay proportionally with full-time pay. This ensures that part-time employees get a fair salary based on their working hours.
- Can base salary fluctuate over time within the same role?
Yes, the base salary can increase or decrease over time for the same job. This can be due to factors such as performance reviews, merit increases, promotions, or cost of living adjustments. It can also result from market changes or the financial health of the business.
