Base Pay

What is a 'Base Pay'

Base pay is the initial rate of compensation an employee receives in exchange for services. It excludes extra lump sum compensation such as bonuses or overtime pay, as well as benefits and raises. An employee's base pay can be expressed as an hourly rate or as a weekly, monthly or annual salary.

BREAKING DOWN 'Base Pay'

Some forms of compensation typically excluded from base pay include shift differential pay, on-call pay, pay for special assignments and incentive-based pay. As a general rule, an employee's base pay is the minimum amount he should expect to receive during a specified pay period, excluding additional financial or tangible compensation that may increase the total pay above this level.

Base vs. Annual Pay

While base pay excludes supplemental compensation received in the course of employment, annual pay takes into account actual earnings over the course of the year. Annual pay may be significantly higher than the base pay since it may include bonuses, overtime, benefits or awards.

Annual pay also factors in any amounts paid by an employer for a worker's medical, dental and life insurance policies. The sum of these premiums is added to the base rate, along with other forms of compensation such as overtime or bonuses, to calculate the amount of pay that was actually received in a calendar year.

Base Pay for Salaried Employees

In contrast to hourly employees who are compensated for the exact number of hours they work in a pay period, a salaried employee is usually expected to work a minimum number of hours in exchange for his base pay. Some companies do not require salaried employees to keep track of their hours.

Many workers who receive a base salary are exempt from federal labor laws governing overtime compensation. Consequently, they do not receive overtime pay if they work more than the minimum hours required by the employer. Some positions may necessitate working significantly more hours than the typical 40-hour work week.

Base Pay Variances

Base pay rates vary significantly between professions. In general, professions requiring advanced education and specialized skill sets pay higher base rates than jobs that call for basic skills. In competitive fields, employers often offer attractive base pay rates to recruit highly qualified applicants.

In addition to paying high base salaries, companies may woe prospective employees with additional perks including a generous benefit package, retirement plan, investment options and tangible rewards such as a company vehicle or paid leisure travel. These extras can substantially increase a company's likelihood of hiring and retaining top-notch personnel.