Basic salary, also termed base salary, is the specific amount of compensation an employee earns on a regular basis. Organizations have to pay a fixed amount of money to their employees for carrying out their regular responsibilities. This fixed amount of money is called a basic salary and no deductions or additions should be made to the basic salary of an employee.
It’s usually seen that deductions and additions after that basic salary eventually make a significant impact on the total salary of an employee.
What is the Calculation Method for Basic Salary?
To calculate the basic salary, first, you must find out the annual salary of an employee. Then you have to divide the annual salary by the number of payment periods to get the basic salary of an employee. For instance, if an organization pays the employees on a monthly basis, employees will get one-twelfth of their overall annual salary each month.
Is There Any Difference Between Hourly Pay and Basic Salary?
Yes, there is a major difference between hourly pay and basic salary. A basic salary is a fixed amount of money employees get from their companies. The number of working hours is not a matter of consideration in the basic salary. On the other hand, hourly pay completely depends on the number of working hours an employee completes. Hourly paid employees are not entitled to any fixed payment.
How Basic Salary Is Different From Net Wages and Gross Earnings?
Gross earnings, basic salary, and net wages play different parts in structuring the compensation of employees.
Gross earnings are the accumulation of all the additional bonuses and sales commissions plus the basic salary.
Net wages is the final form of an employee’s salary when gross earnings, taxes, and all other deductions are included.
Which Factors Can Affect Basic Salary?
Usually, basic salaries are affected by several factors such as:
1. HR Policies
Basic salaries are mostly affected by the HR policies of different companies. HR policies allow an expert and valuable employee to earn more than other employees in the same position.
2. Company Policy
Companies offer different salary structures while hiring new individuals and it heavily depends on factors like demand, turnover ratio, and the product itself.
The different industry has different salary margins. For instance, the salary range of the manufacturing industry will be different from that of the software industry.
Specific countries and their socio-economic situation play a major role in setting up the basic salary. For example, the basic salary of south Asian countries will be completely different from European countries.
What Are the Advantages and Disadvantages of a Low Basic Salary?
It needs to be mentioned that, a low amount of gross salary and allowance can make the basic salary competitively lower. Although most employees don’t like to have a lower basic salary, it also comes with some significant advantages including:
The tax payment becomes significantly low
Increases the possibilities of higher savings
Competitively more cash to spend
However, there are some considerable disadvantages of a low basic salary as well. They are:
Gratuities are comparatively lower
Bonuses are less satisfactory