Search topics

Basic Salary Meaning

What is Basic Salary?

Basic Salary or base pay is the total amount a regular employee earns every day before any adjustments. Adjustments can be any bonuses, overtime, or any addition and deductions that affect the amount of salary. Moreover, basic salary is the basis on which all other allowances and bonuses, etc., are calculated.

The basic salary is a fixed amount and may increase over the period an employee serves in an organization that is the increment with the increase in experience in the number of years, and it also increases on promotions to next higher grade(s) or more than that - promotions to the grades up at any level. The basic pay may be decreased too as a penalty for any misconduct done and proved on the part of an employee, and that is called demotion in HR terminology.

What Is the Difference Between Basic Salary, Gross Earnings, and Net Wages?

Base salary or basic pay is the base of the payments made to an employee by an employer against the services to be rendered /sold/provided by an employee to the employer. This is the basis for all other allowances which are made on certain pre calculated/pre decided percentages of the basic pay. Those allowances are medical health, travel; housing, etc. Hence after the gross earnings per month become basic pay plus allowances per month. And, the net wages is the net amount employee receives after necessary deductions like income tax, retirement plan, if any, and others.

The formula for Gross Earning

Gross Earning = Basic Pay + Allowances

Example:

If an employee’s basic pay is $500 per month, hence the rate of the travel and medical allowances are each = 10% of the basic pay, therefore the gross earning of this employee would be 10%+10% of the 500 plus the basic pay,

Basic pay = $500

10% medical = $50

10% travel = $50              

Gross Earning = $600 per month

Taxes @ 5% = minus 5% of $600

Retiring plan = minus 5% of $600



Therefore: $600 - $60 = $540 is the net wage(s) per month

Difference between Basic Salary and Hourly Pay

Basic salary or basic pay is the base of the payments made to an employee by an employer against the services to be rendered /sold/provided by an employee to the employer. This payment can be made on an hourly, weekly, or monthly basis. The payment(s) of such arrangements are usually made on monthly basis. Basic salary or base pay is the basis for all other allowances which are made on certain pre calculated/pre decided percentages of the basic pay. Those allowances are health insurance, travel; housing, etc. Deductions are made after the inclusion of the allowances based on basic pay.

Whereas hourly pay is purely a form of the rate of the payment by the employer to the employee against jobs/works/services rendered/sold by an employee/worker to the employer. The hourly employee receives the salary based number of hours worked. The payment(s) of such an arrangement is usually made weekly/fortnightly basis. Such arrangements are also called contingency management for human resource needs. Contingency requirements HR management is the requirement of workers for a certain period of time only say in case of some project(s) completions and can also result in overtime if the project's completions end date is near which leads hourly employees to overtime pay.

Related: Hourly to Annual Salary, Salaried Employee, Wage to Salary, Hourly Employee, Net Pay, Pay Calculation