Whether you’re searching for a new job or trying to negotiate a raise at your current position, understanding all elements of your compensation package is critical. However, when evaluating various benefits alongside a base salary, you may find that compensation packages can feel complicated.
In this article, we will 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 ad 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 8 hour day.
Base salary does not include any extra lump sum compensation, including overtime pay or bonuses, as well as 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, each of these elements can be involved in 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 (see below).
Calculating your base salary
Calculating your base salary follows a fairly straightforward formula.
Say you receive a salary of $1,000 per month that is increased by $2,000 every two months over a six month period. The formula to calculate your base annual salary would therefore be: ($1,000 x 2) + ($3,000 x 2) + ($5,000 x 2) + ($5,000 x 6), for a base salary of $48,000 annually. After the initial six month period, the base salary is $5,000 per month.
Comparing your base salary
The Bureau of Labor Statistics (BLS) has a breakdown of the average salary and wage of workers by age. Other factors of variation in base salary include education, skillset, cost of living, level of experience and seasonality.
Depending on the skills required by your role, 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 BLS statistics are not adjusted for seasonality. You can compare average salaries by job title, industry, company and location on Indeed Salaries.
Base pay vs. annual pay
While base pay and annual pay sound similar, these are two different concepts. In contrast to base pay, which excludes extra compensation, annual pay takes into account additional earnings over the year. This includes overtime, awards, bonuses and benefits.
Salary Pay vs. Hourly Pay
Salary Pay Pros
1. Consistent paycheck
2. Paid time off and sick days
3. Eligibility for more, better benefits
4. More career advancement opportunities
Hourly Pay Pros
1. Overtime compensation
2. Holiday pay (ex. time and a half)
3. Ability to dedicate time to other interests
4. Some autonomy over your schedule
Salary Pay Cons
1. Potential to work more than scheduled hours
2. Potentially less autonomy over and holidays and overtime
3. Reduced availability for additional jobs
Hourly Pay Cons
1. More vulnerable to economic changes
2. Pay losses when tardy or absent
3. Typically fewer benefits
The amount of annual pay includes the cost of benefits like medical, dental and life insurance policies by adding the sum of these insurance premiums to the base pay and all other compensation.
Base pay for salaried employees
Hourly employees are compensated for the number of hours that they work over a pay period and may receive overtime pay. Hourly employees must keep careful track of their hours to be compensated accordingly.
Salaried employees are typically expected to work a minimum number of hours in exchange for their base pay, but they may work additional hours without more compensation and are not required to track the hours that they have worked.
Related: Salary vs. Hourly Pay
What is a compensation package?
A compensation package is your base pay plus other benefits. When considering a job offer or a raise, it is critical to take into account not just the base salary, but the entire compensation package that is offered.
There is a wide variety of potential benefits packages that employers can offer. Benefits can be provided at the employee’s expense or the employer’s expense or covered by both the employer and employee.
Compensation packages can include benefits such as vacation time, paid holidays, sick time, health insurance, dental or vision insurance, life insurance, stock ownership plans, pension plans and many other options. These forms of compensation are valued in different ways by both the employer and employee.
For example, an employee who has family member dependents covered under their health insurance may value a better health package over vacation days, while an employee covered by someone else’s insurance, such as a spouse or parent, may have more interest in vacation days.
Salary negotiations: base salary vs. benefits
Negotiating salary and benefits can be intimidating. It is important to understand the different elements of an offer and how to ask an employer or potential employer for an increased compensation package.
When you receive a job offer, the employer will present you with a compensation package that includes a base salary and potentially other benefits. You may choose to negotiate for a better compensation package if you believe that the offer is not in line with your skillset, education, career level or other strengths.
Here are several tips for negotiating your benefits package:
Carefully consider an offer before giving a firm response
Express your appreciation for the offer and inquire as to when the employer will need a firm response. It is smart to say something like, “Thank you so much for this offer, I look forward to reviewing it. When do you need a response from me?” Generally, it is reasonable and expected to take a day or two to review the terms of the offer.
Ask questions about the offer
During this time, you may develop questions about the offer. Even if the offer is better than expected, it is important to make sure it includes everything you need because your initial compensation package will shape your compensation over your term at the company and potentially throughout the rest of your career.
Negotiate during both informal and formal offer stages
In the negotiation phase, anything you say is not typically considered binding. The employer may change the terms of the offer, and you may still back out even if you have informally accepted an offer or engaged in negotiations over the terms.
You may engage in informal discussions with a potential employer, but at some point, they will provide an official job offer letter outlining the terms. Even at this stage, you may request clarifications or changes. If you’d like to negotiate, it’s best to set up a time to talk by phone rather than countering via email. It can be a professional and straightforward request along the lines of “Now that I’ve had time to review the offer, I would like to discuss the details, can we set up a time to speak?”
Be prepared with the precise terms you want to see changed in the offer
Regarding the base salary, if you’d like to negotiate, provide a range that begins with the amount that you want. This base salary should be rooted in your research on salaries in your field for similar roles and what is considered reasonable compensation for your level of experience, location and so forth. For example, if you hope to get an offer for a base salary of $60,000, you might give a range of $60,000 to $65,000 in response to the offer.
If you find that a potential employer is unwilling to move on the terms of the base salary, you may also negotiate other elements of the total compensation package. For example, you might ask for more vacation days, stock options or a higher range of performance-based bonuses.
How to share your salary history
Throughout the interview process, you should be prepared for a potential employer to ask about your salary history. Some employers ask about salary history on the initial job application form while others may ask before making an initial offer. Do not offer this information unless you are asked for it directly.
1. Have your answer ready at any stage of the process
In some states, potential employers are not permitted to inquire about your salary history, and in that case, they will most likely ask for your salary expectations. You should have an answer for either salary history or expectations.
2. Research average salaries to provide a reasonable base
First, keep in mind that the reason that employers ask about salary history is to determine your potential market value and to make sure that your salary expectations are in line with the budget for the role. If your recent salary is significantly higher than their initial offer, they may not have the budget to accommodate your salary needs. It could also be an indication that you could be overqualified for the role as offered.
3. Avoid answering if necessary
If you feel uncomfortable sharing your salary history or would like to avoid the discussion until the negotiation phase, you may politely decline by explaining that you would rather learn more about the role and its responsibilities before moving to a discussion of salary expectations.
4. Consider your current holistic benefits package
If you do share your salary history, make sure to include information about your entire compensation package, not just your base salary. This should include amounts for bonuses and commissions that you receive regularly. If the sum is uneven, you can provide an average. For example, you might say that “In my current role, I earn a base salary of $65,000, in addition to an average annual bonus of $5,000.”
5. Provide your highest salary per position
Additionally, if you do provide a salary history, make sure to list your highest gross annual salary for each position. It should include the total salary you earned in one year before taxes, including base salary and other forms of compensation.
Different types of benefits included in total compensation
In addition to base salary, there are several other compensation package benefits that you may negotiate. Types of benefits companies offer in standard compensation packages include health insurance, performance-based bonuses and retirement plans. The value of these plans may or may not be reported to employees. You should also keep in mind that the same rate may not be available to you if you pay for an individual health insurance plan.
Some companies also offer more unusual or creative benefits as part of a total compensation package. These may have different financial values but may also be valued differently by individual employees depending on their interests.
Compensation like gym memberships, on-site child care, flexible work schedules and other types of unusual compensation might be low-cost to companies but could save you time or add to your quality of life. You should make sure you understand all of the compensation elements of a job offer on top of the base salary.
Consider how you value each of these types of compensation before you make a counter-offer or accept an offer.