What is base salary?

Base salary means the amount of compensation an employee receives for their work before you take any deductions or add bonuses, commissions, reimbursements, stipends, perks or benefits. In other words, an employee’s base salary represents the minimum amount they earn for their work. Depending on the terms outlined in their offer letter, an employee may earn much more in incentive payments and benefits.

Type of employees who earn a base salary

Salaried employees receive a predetermined amount of money every pay period. This payment amount typically remains the same regardless of how many hours the employee works. Many salaried employees are exempt, which means they aren’t guaranteed overtime pay.

Some employees earn an hourly wage. Under this compensation model, the employee typically earns the same amount of money for every hour worked. At the end of each pay period, the employer multiplies the number of hours worked by the employee’s hourly rate. Some hours are paid at a higher rate if they qualify for overtime or holiday pay. The number of hours worked can fluctuate, so hourly employees don’t necessarily receive the same amount of compensation each pay period.

Calculating base salaries for employees

Several factors determine an employee’s base salary. You need to set your salaries high enough to attract quality employees while staying within your budget. Consider the following factors when setting the salary for a job within your company:

• Industry standards
• Requirements and responsibilities of the position
• Candidate’s experience
• Work location
• Competition for candidates in that position
• Salaries offered by competitors for similar positions
• Value of additional perks and benefits the employee will receive
• Your budget

Anything that makes finding an employee more difficult might require you to increase your base pay. For example, an employee with significant experience may expect a higher salary than an entry-level candidate. A remote or dangerous work location may require more pay as well, often known as hazard pay. In a highly competitive market, paying more can give your company an advantage over its competitors.

Should you include base salary in your job ads?

Prospective applicants often want as much relevant information as possible to help them decide if a job is a good match for their needs. If you’re not sure if you should include basic salary information in your job posts, consider the following pros and cons.

Pros of listing base salaries

Including the base salary in your job posts has the following advantages:

• Some applicants won’t apply for a job if there’s no salary information available, so including base pay may help increase the size of your applicant pool.
• Candidates know right away if the salary range meets their expectations.
• It can save time in negotiations if candidates know what to expect.
• Competitors may not list their salary ranges, making your company stand out in a crowded job market.
• You establish your company as honest and transparent.
• Some states require employers to post salary information. If your state is one of them, posting the base pay for each job helps you stay in compliance.

Cons of listing base salaries

Pay transparency can have the following drawbacks:

• It can uncover unfair compensation practices, such as pay discrepancies for underrepresented groups. By addressing those issues and working toward equal pay, you can turn this into a positive.
• Competitors can easily see what you offer and can set their base salaries slightly above yours to attract top candidates.
• If the position includes commissions or bonuses, listing just the base salary doesn’t give applicants the full picture of what they can earn.

Other elements of a compensation package

While base salary is an important factor for potential employees, the total compensation package can make your offer more appealing. Consider offering the following:

• Paid time off (PTO): If your company offers PTO, employees receive a certain number of paid days off each year.
• Bonuses: Many companies use bonuses to reward employees for their work or motivate them to achieve important goals. It’s also common to offer sign-on bonuses and retention bonuses. For some applicants, the ability to earn significant bonuses is more important than the base salary for a job, so offering bonuses may make it easier to attract quality applicants.
• Insurance coverage: Although base pay is important, some job seekers are more concerned with the value of their benefits. For example, a promising candidate may be willing to accept a lower base salary if your company offers comprehensive health insurance coverage. If you have the budget, you may also want to offer health, vision, life and/or disability insurance.
• Discounts: If you sell products or services, consider offering an employee discount. This is a common perk in the retail industry.
• Reimbursements: Some companies reimburse their employees for their work-related purchases. For example, if your company is in the manufacturing industry, you might want to reimburse factory employees for one pair of steel-toed work boots per year.
• Flexible schedules: If you have a limited budget, you may not be able to offer higher salaries or costly benefits, but you can still give employees valuable perks. Consider offering flexible schedules to make your company more attractive to prospective applicants.

How to make your compensation packages more competitive

Offering competitive compensation may help your company increase the size of its applicant pool and reduce the amount of time it takes to fill open positions. If you’re looking to make your compensation packages more competitive, follow these tips.

1. Perform regular salary surveys

Salary surveys collect wage data for a specific industry or role. When conducted effectively, a salary survey can help determine whether your company’s wages are above, below or in line with the market average. If your competitors offer higher wages, you have an opportunity to change your compensation structure.

Although salary surveys are helpful, they also have these potential drawbacks:

• Difficulty collecting data: Many employers keep their compensation data private, so you may have to use other data sources, making it more difficult to determine the average salary for each role.
• Resource usage: A high-quality salary survey takes time. If you don’t have an employee who can gather and analyze data, you may have to hire an outside consultant.

When you conduct a salary survey, it’s important to choose competitors that closely resemble your organization. For example, if you work for a hospital with 2,000 employees, it’s best to collect salary data from other hospitals with around 2,000 employees. For the most accurate results, make sure to compare data from similar industries.

2. Seek feedback from current employees

If you don’t have the resources to conduct a salary survey, try surveying your employees instead. You can do a general survey or one that focuses on compensation and benefits. Regardless of which one you choose, it’s important to preserve each employee’s anonymity. Team members are more likely to be honest if they know that their responses won’t negatively impact their employment status.

3. Revamp your pay structure

To make your company more attractive to quality applicants, you may have to revamp your pay structure. A traditional salary structure uses pay grades to determine the salary range for each position. Although this structure is common, it’s not ideal for every organization or industry. If you’re having trouble attracting applicants or retaining employees, consider switching to a step-based salary system, broadband salary ranges or another pay structure.