What Base Pay Is and How to Calculate It

When you strip away the bonuses, overtime pay, and fancy benefits packages, you're left with base pay: the core salary an employee can count on. It's the starting point for all other compensation decisions.

So, what is base pay from an employer’s perspective? And why is it important to know? Here’s how to calculate fair rates and build competitive compensation packages that keep top talent happy.

Base pay serves as the foundation of your compensation structure. It's the set amount you promise employees before adding any extras or removing deductions, representing the guaranteed minimum employees earn for their work.

That’s base pay, but what is base salary? Base pay can refer to hourly rates or salaries, so base salary is just base pay for salaried employees.

Think of base pay as the starting point for compensation packages. While your employees might earn more from different additions to their paychecks, their base amount provides reliable, predictable income.

Base pay also comes before any deductions. Your payroll team takes out money for mandatory deductions like taxes and social security, as well as benefits the company pays for like retirement contributions. Some workers might have other deductions too, like commuter benefits or wage garnishments. While deductions reduce take-home pay, they don't change the underlying base pay rate.

Many things don't count as part of base pay, even though they show up on paychecks and in job offers. These extras can significantly increase an employee's earnings, but they're on top of base pay, not part of it. They include: 

While these benefits aren't included in base pay, they're still a critical component of good job offers. Plus, improving your benefits package doesn't have to be expensive. In fact, it doesn't have to cost anything. With EarnIn, your employees get flexible access to their earnings¹ when they need it — at no cost to your company.

Setting the right base pay means balancing a variety of factors to create fair, competitive compensation packages that work for you and your current and potential employees. Here are the main considerations:

A position's responsibilities, required skills, and place in the organization all affect base salary. Leadership roles and positions with more complex duties typically command higher earnings. 

It's important to maintain fair pay differences between levels. A supervisor's base salary should be noticeably more than their direct reports' pay. When base pay or gross salaries are too close, it's called wage depression, and it can make long-time employees feel underappreciated.

Research what other employers pay for similar roles. Beyond simple salary surveys, you can check job postings from competitors, consult industry associations, and track salary trends on professional networking sites. Some companies even hire compensation and benefits specialists to ensure their base pay stays competitive enough to attract and keep talent.

For companies with offices in multiple cities or with distributed remote teams, location is a major factor that affects salary rates. The same role might command a 30% higher base salary in San Francisco than Chicago based on cost of living and local market conditions.

Advanced degrees, professional certifications, and years of relevant experience all increase base pay, especially in highly skilled fields. For example, an IT manager with an advanced degree may be able to negotiate a salary significantly higher than someone with less education but similar experience.

Your organization's budget, growth plans, and overall compensation philosophy help determine base pay ranges. Consider both current finances and future sustainability when setting rates. Remember that raising base pay later often costs more than setting it right initially.

Let's look at two concrete examples to illustrate how employers weigh these factors.

Consider an opening for a software developer. An employer might start with an industry average base salary of $85,000 for their location. When a candidate brings five years of experience and an advanced degree in the role's specialization, the employer might bump the base salary to $95,000. If the role is in a major tech hub where competition for talent is fierce, they could push it to $105,000. The final base pay decision also depends on the candidate's leadership responsibilities and how their salary fits in with other engineering team members.

For an hourly restaurant manager position, an employer might begin with a base rate of $22 per hour based on local market research. A candidate with previous management experience and a degree in hospitality management could command $25 per hour. Working 40 hours per week, this comes to an annual base pay of $52,000. While they might earn more through overtime pay during busy seasons or other company-paid perks, their base hourly rate doesn't change.

Look at base pay as the starting point of an employee's earnings story. Gross pay, or gross salary for salaried workers, tells the rest of the story. It includes everything an employee earns before deductions kick in: base salary plus overtime pay, bonuses, commissions, and any other extras that increase total earnings.

These numbers matter for a few different reasons. When you're making job offers, base pay grabs attention because it shows candidates their guaranteed income. Gross pay helps seal the deal by giving a clearer picture of total earnings before deductions at the end of each payroll period.

For your business operations, tracking both base pay and gross pay is crucial. Base pay gives you a starting point for budgeting since it stays steady. Gross pay, which changes based on things like overtime and bonuses, gives you the full picture you need for tax reporting, payroll management, and more precise budget planning.

You can calculate gross pay for any period of time, like weekly, monthly, or yearly. Annual pay is just gross pay that covers a full year of income.

Base pay forms the foundation of an employee’s salary, while annual pay — like gross pay for a one-year period — includes all of an employee's extra earnings over 12 months, from bonuses to overtime hours worked.

Here’s some more information you should know about base pay.

Most employers review salaries annually, usually during budget planning or performance review seasons. That said, it's a good idea to watch for major market changes or shifts in your industry that might require mid-year adjustments to stay competitive.

Employers have to follow federal and state wage laws, including minimum base pay wage requirements and the Fair Labor Standards Act. Keep clear records of all pay decisions and adjustments, and regularly review your compensation package to ensure pay equity across similar roles.

Understanding base pay is crucial for effective compensation planning. Building on this foundation, additional benefits like EarnIn’s no-integration Earned Wage Access¹ (EWA) solution can enhance employee financial well-being. By giving employees access to their earned wages before payday—whether to manage everyday expenses or cover unexpected costs—you can help improve their financial flexibility, leading to higher productivity and greater workplace engagement. Employees can access their pay the same day they work, starting at $2.99 per transfer to their bank account, with the ability to get up to $150 per day, with a max of $750 between paydays.

CTA: Give employees financial flexibility with EarnIn