What Does Basic Pay Mean?

Basic pay, also referred to as basic salary or base pay, means a fixed amount that an employer agrees to pay an employee in exchange for the employee’s time, services, and work. In other words, base pay is the hourly wage or monthly salary a company pays an employee for working.

Base pay is the initial salary paid to an employee, not including any benefits, bonuses, or raises. A base salary is the initial compensation amount or wage employers agree to pay an employee at the start of a job. Employers prefer basic pay as a “basic salary” and “base pay,” but all of these terms ostensibly mean the same thing. Think of base pay as the preliminary figure a worker earns when working for a company.

Many employees are not familiar with basic pay, yet they should be. Employees can typically view their base pay on their paychecks and ensure that the initial payment amount is correct before any additions or deductions. Of course, base pay is usually a much different number than an employee’s net pay. Still, it is helpful for workers and employers to understand the concept of basic pay and how companies calculate it.

In this article, we will define basic pay using examples and compare basic pay to other payment elements, including gross and net pay.

How Do Employers Calculate Basic Pay?

When employers determine workers’ basic pay rates and sums, they assess their earnings before adjusting the figure. Therefore, the worker’s hourly rate and number of hours, or salaried rate, determine basic pay.

Once the employer makes additions and/or deductions to the person’s payment, the figure is no longer known as basic pay. So, for example, if a worker earns a bonus for one quarter, their base pay would not reflect the bonus. Likewise, when an employer deducts earnings to pay the business’ health insurance plan, this deduction does not represent base pay.

Deductions and additions come in all different forms, and employers can pay base salaries in a variety of different manners. For example, basic pay can be years, hourly or monthly.

If an individual earns $10 per hour and works 40 hours per week, their base pay per month would be $1600. However, the base pay figure would remain the same if the worker earned a bonus of $25 each week but paid $50 in taxes each month.

Is Base Pay the Same as Hourly Pay?

The OPM defines basic Pay is defined as the rate fixed by applicable law or regulation. Workers who earn a salary get a set pay per period, regardless of the hours they logged in the office. On the other hand, hourly workers are paid based solely on the number of hours they put in. Hourly workers can also receive overtime if they work over 40 hours per week, while most salaried employees cannot receive overtime pay.

Therefore, Nakase Wade’s California employer lawyer believes that both hourly workers and salaried workers can calculate their base pay. Base pay is a worker’s payment amount before it is opened to additions or deductions. Base pay is not the same concept as hourly pay.

What Is the Difference Between Basic Pay, Gross Pay, and Net Pay?

From base pay to net pay to gross pay, we use multiple payment terms daily in the corporate world. These concepts are important, but it is easy to confuse them. Since both employers and employees should be able to easily understand the differences between these different payment elements, let’s provide some more detail.

What is Gross Pay?

Gross pay is the amount workers earn before employers and agencies withhold taxes and other payroll deductions, such as benefits, from their paychecks. Therefore, many consider gross pay the “total” amount of the paycheck, although workers do not see the entire amount.

Gross earnings, therefore, contain the base salary plus additional earnings. So, for example, if a worker earns three sales commissions during a pay period, their employer would add those amounts to their pay, and that sum would be considered gross pay.

What is Net Pay?

Net pay is the amount workers possess after subtracting withholdings. We also call net pay “take-home pay” since it is the amount employees can deposit or spend.

Net pay numbers depend on the number of payroll deductions. Some deductions are voluntary; for example, some workers elect to pay X towards retirement. However, some deductions, for example, taxes, are mandatory.

Net pay, therefore, is the amount that employees bring home after taxes and deductions are removed from gross earnings.

Different companies, and different positions, involve different payroll deductions. Some deductions are voluntary, for example, if an employee elects to pay into a retirement fund or partake of optional health insurance. However, some deductions are obligatory, such as state and federal taxes.

An Example

For example, a new business hires Rex and offers to pay him $5,000 per month as basic pay. When the company pays Rex for the first time, he notices that the business paid him a signing bonus of $500, so his gross pay is $5500.

However, Rex reads the fine print and sees that his new company correctly withheld state, federal and local taxes. Rex also paid for his benefits.

Rex’s new net pay amount is $4250.

Does Base Pay Change?

A person’s basic pay fluctuates over the course of their career. As a result, basic pay can increase, decrease, or stay the same for an extended time.

When they post job advertisements, many companies use a salary range. A salary range includes the highest and lowest amount a company will pay candidates for a specific position. Employers typically base their salary range choices on current market rates and employee qualifications.

When companies first hire workers, they generally pay them a salary near the minimum amount as their basic pay. However, as the employee gains more understanding of the job and improves, companies often pay them more. Sometimes, the company raises the person’s pay multiple times until they reach the higher end of the maximum allotted to pay for the position. At that point, many workers apply for new, higher-level positions at the business.

Base pay reductions are not as typical as increases, but they sometimes occur. For example, during difficult economic times, such as a recession, some businesses must lower salaries and lay off workers. Some employment contracts disallow salaries from being cut, but some businesses have free reign to do so. Plus, some workers who are not formally contracted to work can opt to leave the company instead of receiving a lesser base pay rate.

Companies cannot reduce basic pay without clarification from the worker’s contract. For example, if a company withholds pay because the employee’s manager is unhappy with the employee’s work rate, that action is illegal.

However, companies can add employee base pay wages through overtime payments, bonuses, and supplemental pay.

Contact Nakase Wade for Expert Legal Counsel

We encounter both employers and workers who are confused regarding terms such as basic pay, basic salary, and base pay. However, once we clear things up and clarify terms, they have a much better understanding of these important concepts.

Basic pay is the payment the worker and employer agree upon, excluding other deductions or additions. Alternatively, gross pay is the amount companies pay to individuals before deductions. Gross pay includes overtime pay and bonuses, which differentiates it from basic pay.

Contact our legal team today if you feel that your company is withholding pay unlawfully or have any other questions or concerns about your base pay rate. Our California business lawyers and corporate attorneys are ready to assist you, and we offer free consultations.

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