Pay & Salary

Understanding the Base Salary in Your Compensation Package

January 26, 2021

Whether you're searching for a new job or trying to negotiate a raise at your current position, understanding the elements of your compensation package is critical. In this article, we review what a base salary is, how it fits into a larger benefits package and how to consider base salary about your overall compensation.

What does base salary mean?

Base pay, or base salary, is the initial rate of compensation that you receive as an employee in exchange for your services. Base pay is expressed in terms of an hourly rate, or a monthly or yearly salary. In other words, a job description that promises a base pay of $20 per hour means that the employee would earn a salary of $20 per hour worked, or $160 for an eight-hour day.

Base salary does not include any extra lump-sum compensation, including overtime pay or bonuses, or other types of benefits. For example, tips, sales commissions, stock options, health insurance, vacation time or use of a company car are not included in base salary. However, any of these elements your company provides are part of your overall compensation package.

When employers talk about "salary," they are almost always referring to the base salary rather than the larger salary package. This broader package usually includes the base salary plus additional benefits or incentives.

Calculating your base salary example

If you receive a salary package where the monthly base salary is $2000 for the first three months, with a 50% increase for the next three months. If you then get another 50% boost at six months, the total base salary for the first year works out to be:

  • First 3 months: $2000 X 3 = $6000
  • Next 3 months: $3000 X 3 = $9000
  • Next 6 months: $6000 X 6 = $36000

After the end of six months, the base salary will stand at $6,000 and the total annual base salary will work out to $51000.

Comparing your base salary

The Australian Bureau of Statistics (ABS) has a breakdown of the average salary and wage of employees by age. Other factors of variation in base salary include education, skillset, cost of living, level of experience and seasonality.

Depending on the skills your role requires, your level of education can significantly affect your base salary. Someone who has a professional certificate or master's degree might make more than someone who has a high school diploma or undergraduate degree, for example.

Having more experience in an industry or a particular role helps you gain knowledge and contacts in the field, and therefore a higher earning potential. Special skills, or skills that are in high demand, can lead to a higher-than-average salary for your age group.

In addition to your skills and qualifications, other factors can shape your base salary. Specifically, some regions are more expensive to live in than others. Salaries are often higher in more expensive locations so that employees can cover the higher cost of living. Finally, some positions, such as teaching, are paid more at certain times of year than others. The ABS statistics are not adjusted for seasonality. You can compare average salaries by job title, industry, company and location on Indeed Salaries.

Base salary vs. annual salary

The base salary is just one component of the annual pay.

Your annual salary is the combined amount of all the individual perquisites, benefits and earnings you draw over a year. This includes payments like performance bonuses, overtime, stock options, incentives, medical, dental and life insurance policies.

Base pay for salaried vs. hourly employees

A salaried employee is required to work a minimum number of hours as per the work contract. An employee may be entitled to be paid overtime if they are covered by an award or enterprise agreement.

Hourly employees get paid based on the number of hours they work. Employers and employees must agree on the minimum number of hours and the time the employee is available to work. They may or may not be entitled to any extra hours they put in. Each industry award and agreement has different overtime rules, which dictate when overtime may be worked and when an overtime rate is applicable.

What is a compensation package?

The overall compensation package is the sum of your base salary plus the other benefits included in it. Companies often have a wide array of benefits to choose from while fixing the final salary package.

Some of these benefits may be fully paid for by the employer, or at the employee's expense or covered by both the employee and employer. The valuation of such benefits can vary depending on the company, the employee's credentials, the role or even the location.

It is best to evaluate the various benefits while choosing the package that works for you.

Deciding the right balance between base salary and benefits

It is standard practice for the employer to offer you a remuneration package consisting of base pay plus any benefits. Review and make sure the remuneration package is as per your expectations and in line with your academic and professional background and skill set.

The following tips can help you negotiate your way to a better package:

Commit only after fully reviewing the offer

Once you get the offer, avoid giving an immediate yes or a no. Convey your appreciation and thank them. Check on when the employer expects you to commit to a decision. Usually, employers expect a response within 24 to 48 hours.

Seek clarifications after checking the offer

The initial offer may set the ground for future salary revisions. It is critical that you check out for any omissions or reductions in any of the benefits or even the base salary so that you can bring them up for review before taking up the offer.

Request clarifications or changes if necessary

In the negotiation phase, you are free to bring up your points and present your case. At this stage, everything is at an informal level and both parties are free to alter or even discontinue talks. Once the employer extends a revised official offer, review it again. It is best to discuss any pending points over a call or in person, rather than over an email to reach a consensus.

Get the base salary right

Unlike the benefits, the base salary is a single and straightforward component. It's important to research the prevalent range for your job profile based on your qualifications, experience, industry and location.

Be clear on which of the benefits you want added or enhanced if the base salary cannot be increased. For instance, you could request a more attractive performance bonus or stock options or even a paid annual vacation.

How to share your salary details

Any interviewer will bring up the question of your existing salary history at some point. There are job ads that mention the salary range right upfront and others where the compensation package is discussed only with shortlisted candidates.

Be ready with what and how to share during the whole recruitment process.

1. Keep your salary details ready for discussion

Regardless of whether your state prohibits a potential employer from asking your salary details, be prepared to answer questions about your expected salary.

2. Do your homework on the prevalent average applicable salaries

An employer usually assesses candidates' market worth and to ensure that they fit the compensation bracket for the particular job profile. If the current salary in the previous company is already higher than what is on offer, a potential employer may not be able to match it.

3. Only disclose relevant information

You only need share information that is absolutely necessary to be disclosed. The best way to defer this discussion is by asking for more details about the job profile or by getting closer to the final stage of the job offer.

4. Share only the overall package in terms of value

If you have to share your salary history, include information about your entire salary package. If you have periodic payouts like bonuses and sales incentives, average them out to derive an annual figure.

5. Communicate the highest pay for each level

In the event that you have to share a salary history, make sure it is the highest gross package before taxes. This should be followed for each of the positions held by you.

Understanding the various benefits included in the overall package

While you should aim to get the highest possible base salary, there are many kinds of benefits that you can consider in your overall package.

There could be benefits that can have more utility value than monetary and offer a better lifestyle or even saving on time. Examples of these include flexible hours, pet- friendly offices and sports centres and gyms within the premises. These cost less to companies compared to paying an equivalent in cash to employees. An example is a group-health policy taken by an employer that might be cheaper than an individual policy bought by you.

It may be difficult to quantify the monetary value of some of these benefits, but the cost you might need to pay for these at your end could be substantially higher. Also, the value attached to these benefits may vary from employee to employee.

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