Basic Salary

Understanding basic salary and basic wages in the UK
Have you ever been confused by the terms on a payslip? It’s easy to get lost with terms like basic salary, gross salary and net salary that appear without explanation.

So what is a base salary? What is a basic salary? We explain these common terms and the factors that affect your base salary. We’ll also explain how your base salary affects the amount you take home each pay period.

The most important facts
– The basic salary or basic remuneration includes all fixed or guaranteed income associated with the position of an employee.

– Base salary is sometimes stated in job advertisements and recorded in the employment contract once a person accepts a job offer.

– An employee’s basic salary is different from his gross and net wages, each of which represents a calculation step in the payroll.

What is the difference between basic salary and basic wage?
Base salary and base pay both refer to the amount you earn before any additions or deductions are made.

All fixed or guaranteed income is included in the base salary and base salary. For example, a guaranteed annual bonus payment would be part of the base salary. A voluntary bonus, on the other hand, is not part of the basic salary because it does not represent a guaranteed income.

What is a basic salary?
The basic salary is the total amount that an employee is guaranteed to receive in return for his or her work, without taking into account any variable wage supplements or deductions. In the UK, the Minimum Wage and Living Wage Regulations set the minimum standards for basic pay.

When salary is stated in a job advertisement, it typically reflects the base salary for the specific position. Once a person is offered a job, the offer letter includes the base salary. If the person accepts the position and is hired, the basic salary is recorded in the employment contract.

Additions and deductions to base salary can make a big difference when it comes to how much an employee actually receives in their paycheck.

Possible supplements to the basic salary
The surcharges can be specified in the employment contract or in company policy. Surcharges can be:

• Discretionary bonus programs

• Allowances such as Travel expenses

• Commission payments

• Stock options or company shares

• Other incentive payments, such as paid vacation or merchandise vouchers

• Overtime pay

Possible deductions from basic salary
Deductions from base salary often come from statutory deductions, but can also come from voluntary programs. Possible deductions are:

• Taxes and social security

• Student Loan Repayment

• Court-ordered deductions, such as: Child support

• Union membership or deductions due to industrial action

• Pension contributions

• Charitable donations

• Childcare vouchers

• Other salary deductions, such as: for buying bicycles to work

Difference between basic salary, gross salary and net salary
The gross salary consists of the basic salary and any supplements. For example, if an employee earns a fixed annual salary, this is their base salary. If the same employee receives a discretionary bonus, his or her gross salary is equal to the base salary plus the amount of the bonus.

Basic salary and gross wage would be the same if an employee did not receive any supplements to his basic salary during the salary period.

The net salary is the amount that is actually paid to the employee after all allowances and deductions have been deducted. Take home pay is sometimes called “take home pay” because it is the amount you take home after taxes and other adjustments.

Example of basic salary, gross salary and net salary
Jane earns a fixed annual salary of £37,000. She will also receive a £1,000 voluntary bonus and repay a student loan.

Jane’s basic salary = £37,000

Jane’s gross salary = £38,000 (base salary + £1,000 discretionary bonus)

Jane’s net salary = £28,428.40 (Gross salary – £5,086 Tax – £3051.60 National Insurance – £1,434 Student Loan Repayment)

Influences on your base salary
The amount offered as base salary may depend on a number of factors. These factors include job location, industry, role type, experience and seasonality.

Location
The location in which a position is located can have a significant impact on base salary. In the UK, the cost of living, demand for specific skills and local economic conditions vary from region to region. Typically, urban areas and larger cities pay higher salaries due to the higher cost of living and greater competition for talent. For example, the average basic salary in the UK is £33,000, but if you look at London alone this rises to almost £42,000.

Type of activity
Different functions within a company can have different base salaries. Roles that require more responsibility, decision-making authority, and leadership skills typically have higher base salaries. For example, managerial positions or positions that require technical expertise are often paid more than entry-level or administrative positions.

Experience level
A person’s experience level is a crucial factor in determining base salary. Generally, people with more years of relevant experience receive higher salaries because they have a proven track record of success and ability to contribute effectively. Many companies have structured pay scales that increase with each level of experience, reflecting the increasing value that an experienced employee brings to the company.

Seasonality
In some industries or functions, demand may fluctuate depending on the time of year. For example, demand for retail jobs may increase during the holiday season, while certain jobs in agriculture or tourism may be seasonal. These fluctuations can impact base pay as employers may offer higher wages during peak seasons to attract temporary or part-time workers.

The most important thing about basic salary and basic remuneration
Base salary is the starting point for determining the amount of salary an employee receives. During payroll, surcharges and deductions are calculated, which result in the employee’s net wage.

Make it easy for your employees to understand their pay and avoid mistakes with IceHrm’s effortless payroll process. Employees can view and download their payslips saving valuable administrative time.

Frequently Asked Questions (FAQs)
Does the basic salary include a pension?
The basic salary does not include the employee’s pension contributions. The pension contribution is deducted from the basic salary as part of the salary calculation to determine the employee’s net salary.

What is the base salary on a payslip?
The base salary on the payslip is the employee’s salary before all supplements and deductions. This is the fixed amount of money an employee earns for performing their regular duties and excludes additional bonuses or other forms of compensation. Deductions such as tax payments or salary sacrifices are also not included here.

What is the basic monthly salary?
The basic monthly salary is the fixed amount of money an employee earns each month, without taking into account salary increases or deductions. For example, an employee earning an annual salary of £36,000 would see a basic monthly salary of £3,000 on their payslip (£36,000 annual salary divided by 12 months).