What is base pay? (Ultimate Guide for 2023)

Let’s dive right in and answer the question “What is base pay?”

What does base pay include?

Base pay is the initial rate of pay given to an employee before factoring in overtime, tips, commissions, or other bonuses.

Base pay is typically determined by the employer for the work performed during a 40-hour workweek and may be based on a variety of factors including the employee’s experience, job duties, and skillset. 

Is base pay negotiable?

In almost all cases, base pay is negotiable between the employer and employee.

Base pay is often used as a starting point for salary negotiations and may be increased over time as the employee demonstrates their value to the company. Employers use base pay to set employee salaries and may use it as a factor in promotion and pay raise decisions. This makes it important to negotiate for the highest starting base pay possible as base pay will be an anchoring factor in future pay increases.

Base pay is usually increased every year during an annual performance review. An increase to base pay can be merit-based (where base pay is increased proportionately to the individual’s level of performance) and/or based on inflation rates which results in a cost-of-living base pay increase.

For many employees, base pay is an important factor in determining their overall level of satisfaction with their job. A dissatisfaction with base pay (i.e. being underpaid) is among the top three reasons people voluntarily leave their job and job hop.

What is considered base pay?

Base pay is the base hourly rate an employer pays an employee, not including tips, commissions, or bonuses. Base pay is used as the foundation to calculate many other forms of compensation an employee may receive, such as overtime pay, vacation pay, and sick leave pay.

For salaried employees, base pay is typically a worker’s compensation for a set number of hours per week, although base pay can also be calculated hourly.

An employee’s base pay does not include any additional income earned from working additional hours or earning commissions. As a result, base pay is always less than an employee’s gross pay (which includes commission pay, bonus pay, reimbursements, mileage, etc.) and total compensation (which includes base pay, gross pay, benefits, and job perks).

An employer must pay its employees at least the minimum wage (i.e. base pay) set forth by state and federal law. Although some employers may choose to pay their employees more than the minimum wage, base pay cannot be less than the minimum wage.

How is base pay calculated?

Base pay is typically calculated as a percentage of an employee’s total compensation and is used to determine an employee’s take-home pay.

When an employer has a standardized compensation formula, employee base pay is based on a formula intended to eliminate bias, increase wage equity, and ensure employees are paid formulaically based on variables such as skill proficiency and proven success. The employer will ask questions about experience and education as well as assess the employee’s skill level on a myriad of skills that relate to the job’s duties and responsibilities. These variables, among others, determine base pay.

Otherwise, base pay is calculated by the employer and influenced by the employee’s negotiation abilities. There are many variables that go into determining base pay. Variables may include, but are not limited to:

• Skills and skill level
• Experience
• Education
• Track record of success
• Positive references from previous employers
• Trainings and certifications
• Company budget for the position
• The existence  of a standardized compensation formula (or lack thereof)
• What the market is paying for similar roles 
• Other forms of compensation provided such as equity
• How much other employees in similar roles are being paid
• The perceived value of the person

An employer will use the variables above to set an hourly rate for the number of hours the employee will work per week, typically 40 hours for a full-time employee.

Base pay is generally calculated by dividing the annual salary by the number of pay periods in a year. For example, if an employee’s annual base pay is $50,000.00 per year and they are paid bi-weekly they are paid a base pay of $1,923.08 per pay period 26 times per year.

If base pay is calculated hourly, hourly pay for an annual base pay of $50,000.00 would be $24.04. This is $1,923.08 divided by 80 hours for two periods of full-time work at 40 hours per week.

While base pay feels set in stone there are a few variables that can also impact, and increase base pay. These variables include:

• Night shift differentials
• Hazard pay (this pay was added to the base pay of many essential workers during the pandemic)
• Cost-of-living adjustments (which are not the same as pay raises)

Is base pay before or after taxes?

One of the most common questions people ask is “Is base pay before or after taxes?”

Base pay is the amount of money that an employee is paid before any taxes or other deductions are taken out. For example, if an employee has a base pay of $50,000.00 per year and receives no other forms of employer income their gross pay would also be $50,000.00 but their net pay would be $50,000.00 minus taxes. This means that after taxes and other deductions are taken out net pay is less than $50,000.00.

Base pay is typically set by an employer and may be different for each employee depending on:

• Job title,
• Experience,
• Education, 
• How much they negotiated their initial base pay offer (if the employer does not have a standardized compensation formula), and
• Skill level.

Some employers also offer bonuses or commission-based pay in addition to base pay. However, these amounts are typically paid after taxes have been deducted. In general, base pay is the amount of money that an employee is paid before any taxes or other deductions are taken out.

Does base pay include taxes?

Base pay does not include taxes. Taxes are deducted from your base pay after your employer calculates how much you owe in taxes.

The amount of taxes you owe is based on your tax bracket, which is determined by your income. If you have a higher income, you will owe more taxes. If you have a lower income, you will owe less taxes.

Your base pay is the amount of money you earn before taxes are deducted. This means your net income, the amount of money that hits your bank account or your “take home pay”, is lower than your base pay.

Now that we know ‘what is base pay’ and how base pay is calculated let’s walk through a base pay example.

What is an example of base pay?

Let’s walk through an example of base pay…

In our example we work in a busy lab as a phlebotomist. Our hourly pay is $30.00 and we work full-time 40 hours a week. If we have to work overtime our overtime pay is time and a half making our overtime hourly rate $45.00 per hour.

The company we work for loses upfront operational capital everytime it has to wait for medical insurance to pay for a patient’s lab tests. As a result, our employer encourages us to ask patients if they would like to pay cash for lab tests and request reimbursement from their insurance. For every patient that pays for their lab tests in cash we get a flat bonus of $20.00.

Now let’s say that for the first two weeks of the month we work a total of 86 hours and get seven patients to pay for their lab tests in cash.

In our base pay example we earn:

• Full-time pay: $2,400.00
• Overtime pay: $270.00
• Bonus pay: $140.00

Despite earning overtime pay and bonus pay our base pay is $2,400.00. Base pay is the fixed amount of money that an employee receives for completing their job, typically expressed on an hourly, monthly, or annual basis. It does not include other forms of compensation such as overtime pay or bonuses.

Monthly base salary is the fixed monthly payment that an employee receives from their employer. This salary does not include any extra payments, such as commissions or bonuses.

Monthly base salary is typically paid on the same day each month, and it is not dependent on how many hours the employee works. Monthly base salaries are usually listed in an employment contract, and can be renegotiated if both the employer and employee agree to do so. In some cases, the monthly base salary may be directly deposited into an employee’s bank account on a monthly basis.

The monthly base salary is often used as the foundation for calculating an employee’s total pay. For example, if an employee’s monthly base salary is $5,000.00 and they are eligible for a monthly bonus of $500.00, their total monthly gross pay could be $5,500.00 but will always be at minimum $5,000.00. In addition to providing a stable income, the monthly base salary can also be used to calculate an employee’s vacation pay, sick days, other benefits, and annual pay raise.

Base Monthly Salary

Base monthly salary, also referred to as base pay, or “base”, is a fixed minimum payment that an employee receives from their employer. It is calculated before any other forms of compensation.

Your annual base salary is the fixed amount of money that your employer agrees to pay you each year, regardless of how many hours you work.

To arrive at your regular paycheck amount annual base salary is typically divided by the number of pay periods in a year, such as 26 for biweekly pay or 24 for semimonthly pay. In addition to your annual base salary, you may also earn bonuses, commissions, or other forms of compensation that can vary based on factors such as individual performance or company profit. While your annual base salary remains the same, these other forms of compensation may increase or decrease depending on a variety of factors. As a result, it’s important to understand all the elements that make up your total compensation package.

What is annual base pay?

Annual base pay is the amount of money you earn in a year before taxes and other deductions are taken out. This number can be determined by multiplying your hourly wage by the number of hours you work in a year.

Annual base pay is the fixed salary that an employee receives from their employer. It is typically paid in equal installments over the course of a year and is not subject to change based on factors like hours worked or performance.

Annual base pay does not include variable pay such as commissions and bonuses. This makes annual base pay a good tool for budgeting and long-term financial planning – as it is fixed and does not change.

Do you want to calculate your base pay? Use the base pay calculator below to determine your bi-weekly base pay using your hourly rate or annual salary. 

Base pay is the base rate of pay set by an employer for a role, while gross pay is the base pay plus any additional earnings, such as overtime or bonuses. In most cases, base pay is a set amount that does not change, while gross pay can fluctuate based on additional earnings.

Most people are familiar with base pay, which is the hourly rate or salary that an employee is paid. However, gross pay is a bit more complicated. Gross pay includes base pay plus any additional income, such as commissions, bonuses, or tips. It’s important to understand the difference between base pay and gross pay because they are taxed differently.

Base pay is subject to:

• Federal income tax,
• Social Security tax, and 
• Medicare tax. 

Gross pay is only subject to federal income tax. Gross pay includes things such as mileage reimbursement and expense reimbursement (this could be things like a phone stipend or work from home stipend). Therefore, if you want to know your true take-home pay, you need to calculate your net pay, which is your gross pay minus taxes and other deductions. The difference in base pay vs gross pay can have a big impact on your personal income.

Gross Base Pay Example

Now let’s walk through a gross base pay example.

In this example let’s use the scenario of a new hire who will make a base pay of $60,000.00 and receives performance-based commissions at the rate of 7% of the gross sale of a new customer contract only for the first year of the contract with commissions paid bi-weekly (twice a month) for the two weeks prior (all of these performance-based commission details can be negotiated but we won’t get into that now).

Here are the basic variables for our gross base pay example:

• Base Pay: $60,000.00
• Bi-weekly base pay: $2,307.69
• Sales commission rate: 7%

Let’s say the new hire starts training and makes no sales in their first month. In their second month the person makes $18,000.00 in sales during the first two weeks and $11,000.00 in sales during the last two weeks of the month. The sales result in commissions of $1,260.00 to be paid during their second month of employment and the gross pay for their fourth paycheck to be $3,567.69.

Using the details the first four paychecks would be:

• Paycheck 1: Base pay, $2,307.69, Sales: $0.00, Gross pay, $2,307.69
• Paycheck 2: Base pay, $2,307.69, Sales: $0.00, Gross pay, $2,307.69
• Paycheck 3: Base pay, $2,307.69, Sales: $18,000.00, Gross pay, $2,307.69
• Paycheck 4: Base pay, $2,307.69, Sales: $11,000.00, Gross pay, $3,567.69 ($2,307.69 plus $1,260.00 in commission)

If we were to expand our gross base pay example for one more paycheck, gross pay would be $3,077.69 and monthly gross pay for the first two months of work would be:

• Gross pay month 1: $4,615.38
• Gross pay month 2: $5,875.38

Many people think that base salary is the same as gross salary. As our gross base pay example and our base pay example demonstrate, base pay can be a significant component of gross pay; in many cases, it may represent the majority of an employee’s earnings but it is not the same thing.

This makes it important to understand the difference between these two terms, especially when negotiating salary. The variables that contribute to your base salary, the variables that contribute to your gross salary, and your benefits and job perks will determine your total compensation package.

Base salary is the fixed amount of money that an employee earns, while gross salary includes base salary plus any additional amounts that the employee may be eligible for (such as commissions or bonuses).

In general, gross salary is always higher than base salary. However, it’s important to remember that base salary is the starting point for all calculations of an employee’s total compensation. It is a very important number.

When negotiating your salary, make sure you and your employer are on the same page about what you’re talking about by clarifying base salary and gross salary definitions. When you take a moment to clarify base salary and gross salary you also signal to the employer that you are detail-oriented and looking to thoroughly understand your total compensation package. 

1. Base pay is a fixed amount of money that employees earn, it is predictable, while gross pay includes base salary and any additional payments.
2. Gross pay can be an amount more than or equal to base salary.
3. Base pay is the base rate of pay set by an employer for a role, while gross pay is the base pay plus any additional earnings, such as overtime, bonuses, and reimbursements.
4. Annual base salary is the fixed amount of money that your employer agrees to pay you each year, regardless of how many hours are worked.
5. When negotiating your salary, be sure to understand the difference between base pay and gross pay and to confirm that you and your employer are on the same page (as there is a chance the terms may be used differently which can hurt you).